(00:02) Let’s kick things off! I hope everyone has their lunch. It’s an early lunch here in Sydney if you’re in this time zone, so I hope you’re all set. Without further ado, let’s get into the purpose of today’s webinar. Today, we want to discuss understanding credit risk. Now, what does that actually mean? What we hope you’ll take away from today’s webinar is an understanding of industry risk at a macro level. We’ll spend a few minutes talking about which industries are facing increased risk, which are seeing decreased risk, and what that means for you.

(00:30) Next, we’ll talk about specific customers—what does this mean for your customers in your industry? How do we assess risk, and how do we analyse it? We’ll also share some of the methodologies behind how we assess client risk. Finally, and importantly, we’ll discuss what you can do with this data. We’ll share industry risk data and data specific to your clients, and then focus on how you can take proactive action if needed. These are the three outcomes we’ll cover in the next 15 minutes. I tend to speak quickly, so hopefully, you can keep up and follow along. Before we get started, I think it would be great to do a quick introduction of who you are and who illion is. Please go ahead.

(01:26) Cool, thanks, AJ. Hi everyone, my name is Louis Tsang, and I head up the Data Analytics and Insights function here at illion. I work closely with clients on risk analytics, credit analytics, and risk management strategies. For those who don’t know, illion is one of Australia’s leading and largest credit bureaus. We handle a lot of consumer risk and consumer risk data, as well as commercial and company data. It’s a pleasure to have the opportunity to chat with you today, and nice to meet everyone.

(01:59) Thanks, Louis. I’m the Co-founder and CEO of ezyCollect. I ran a wholesale manufacturing business for many years and understand the pain that late payments cause businesses, especially the risk of bad payers. This topic is very close to my heart, and I’m excited to share it with everyone today. So without further ado, let’s get into the macro update. Louis, I’ll hand it over to you to kick off the presentation.

(02:27) Cool, thank you, AJ. I’ve got a few slides here to run through what’s happening in the macro space in terms of credit trends, risks, and so on. Later, I’ll delve a bit more into the micro perspective, discussing how illion and our clients work together to identify risks in different industries. We’ll also cover how to turn these insights into actionable steps that can assist with your business outcomes. AJ, could you move to the next slide, please?

(02:59) This slide sets the scene, showing the risks we’re seeing around the credit space and the economy as a whole, from both a consumer and a commercial perspective. On the left, I’ve got a few charts highlighting some of the consumer lending and the risks that are materialising. Ultimately, consumer lending risks—like those from credit cards, home loans, and personal loans—will affect consumer spending or, more specifically, the lack of spending on businesses, which in turn impacts a business’s bottom line.

(03:27) Tracking consumer risk is important. You can see here that risks in credit cards and personal loans are increasing. What’s worrying a lot of people is the rise in home loan arrears. This chart shows the 30-day arrears rate, highlighting the number of people who are one payment behind. We’re definitely seeing an increase across this metric, especially in the last six months, which isn’t surprising given the current conditions of rising house prices, rent prices, interest rates, and the overall cost of living.

(03:59) How does this translate to things like company insolvencies? While insolvencies are a lagging indicator of commercial risk, they remain a very useful one. We’ve seen company insolvencies almost double compared to 2021. We’ve recorded about 6,600 insolvencies in 2023 already, which is nearly the same level we observed in the whole of 2022. Most of these insolvencies are in the construction industry, about 30%, with another 15% in retail trade and services.

(04:29) Trade late payments are another important metric. These are payments that are late beyond agreed terms, and we’re seeing an increase in late payments not just across Australia but also in businesses in New Zealand, although they seem to be doing a bit better on the other side of the Tasman. Compared to five or six years ago, this average is increasing.

(05:00) Moving on to the next slide, we drill down into trade late payments, a very useful measure both at a macro and micro level. Different industries have different highs, lows, and trends. On the left, I’ve broken down trade late payments by a few segments, starting with industries. For example, food and hotel services are heavily impacted by seasonality and unexpected events, like the recent Telco outage, and spending downturns. Currently, they’re averaging 17.9 days late, the highest it’s been in almost 10 years.

(06:03) Construction is also impacted, dealing with complex contracts, material cost increases, and labour costs. Historically, construction has been one of the better-paying industries. Manufacturing and wholesale trade are actually doing quite well relative to others, likely due to better management of business-to-business payments, possibly related to the structure of their supply chains or less friction in their transactions.

(07:09) Another interesting factor is company size. Historically, smaller companies, like traders, pay a little later, likely because they tend to be price takers. Larger companies also pay later, possibly because they can afford to. In the last six months, however, micro-businesses have started to show significant increases in late payments, with the average now almost 16 days.

(08:12) Drilling down further, this is an example of how we look at specific sub-industries. We’ve chosen construction as a case study. It’s segmented into structural services, installation services, and completion services. We look at three key metrics: insolvencies, trade late payments, and activity. For instance, installation services have seen the biggest increase in insolvencies over the past year. Trade late payments show that painters and plasterers are struggling more, while electricians have been managing quite well.

(09:45) We summarise all this data into commercial risk scores to help our clients understand risks, such as late payment risk and failure risk (the likelihood a company will fail in the next 12 months). On this slide, I’ve averaged these scores to show which industries are performing better and which face higher risks. Wholesale trade and manufacturing are doing better, while retail trade and services face higher risks due to factors like the economy’s poor performance. Construction has actually been improving slightly in the last few months.

(11:22) Thanks, Louis. Well done considering you have a baby next to you as well! Regarding the data we’ve shared, we work closely with illion to make it actionable for your business. I’ll spend the next two or three minutes explaining how you can use this data at a macro and micro level to benefit your business.

(11:50) If you’re an ezyCollect customer or new to ezyCollect, we’ve integrated these failure risk scores and late payment scores with the data you already have on your clients in your ERP. We surface this information in a live dashboard that you can access through ezyCollect. For example, you can see which of your customers you should be worried about—those with a high chance of failure and late payment based on both illion’s data and your own ERP data. These are the customers you may need to stop trading with, send to debt collectors, or take legal action against.

(12:46) We also offer a monitoring service through illion, which allows you to get real-time email alerts when a customer’s risk score changes, indicating an increased risk. This could be due to a court action, director change, or other significant events. By staying informed, you can take proactive measures like stopping sales, sending the account to collections, or setting up a payment plan.

(13:37) In 15 minutes, we can’t cover everything in detail, but hopefully, this gives you a taste of what’s available. If you’re interested in protecting your business further, Louis has something to offer everyone who joined the call today.

(14:09) Cool, thanks, AJ. We publish a few reports on our website, which give more insights into what we do and some of the topics we discussed today. The Economic Health Check covers both commercial and consumer risk, and the Credit Compass Barometer report focuses on consumer risk and credit scoring data.

(15:04) You’ll all receive an email with a link to these reports, so there’s no need to write anything down now. Additionally, if you’d like to try out ezyCollect, we can offer you three free risk scores on your most troublesome customers. Just get in touch with us through the email we’ll send, or if you’re an existing customer, feel free to contact your customer success manager for a good deal over the next three months. Thanks, everyone, for joining us today for this quick webinar. We’re just one minute over time, so I appreciate your time, Louis, and thank you, everyone.