Rising Tide of Insolvencies: A Brief Comparative Analysis of the US and Australia

The threat of insolvency looms over companies and economies, as recent statistics indicate a concerning trend in both the United States and Australia. This blog provides a brief exploration of the latest figures, drawing parallels between the two nations and emphasizing the critical role of effective Accounts Receivable (AR) and Credit Management control in mitigating the risks associated with insolvency.

In my first two blogs, Blogs I shone a light on the susceptibility of every business to bad and doubtful debts and emphasized the responsibility of the AR department and management to implement effective processes and controls that minimize these risks. As the business landscape continues to evolve, adaptability, foresight, and sound decision-making are indispensable management tools, ensuring a strong cash flow with minimal impact on balance sheets due to insolvencies.

The US Insolvency Landscape: Source US ABS

Data from the US bankruptcy filings paints a sobering picture, reflecting a significant 21% increase from November 2022 to December 2023. The total number of bankruptcy filings reached 37,860, up from the previous total of 31,187. These numbers underscore the vulnerability of businesses to economic fluctuations, unforeseen challenges, and other factors that can lead to financial distress, subsequently impacting a company’s cash flow and financial stability.

The Australian Scenario: Source ASIC

Australia has faced its own challenges in the form of insolvencies. The first half of FY2024 saw a notable increase, with 4,293 insolvencies reported—an alarming 26% rise compared to the same period the previous year. This surge raises questions about the resilience of businesses in the face of economic uncertainties, emphasizing the need for robust AR strategies to minimize balance sheet losses.

As insolvency numbers rise in both the US and Australia, credit managers and AR staff are reminded of the crucial role they play in safeguarding the financial stability of their businesses.

The current insolvency landscape highlights the necessity for businesses to fortify their financial positions. Only through effective AR and credit management strategies will companies rise to meet the need.  Remembering if you’re not getting exposed to bad debts perhaps your client credit lending criteria is too tight and may be limiting sales opportunities.

As ongoing economic challenges persist, the adaptability of management and the foresight to implement sound decision-making become instrumental in maintaining a robust cash flow and shielding or minimizing balance sheets from the adverse effects of insolvencies.