NCI’s Trade Credit Risk Index has increased in the first quarter, driven mainly by a sharp rise in the number of insurers reducing or cancelling company transaction cover.

The index released today rose to 902 points for a three-month period bookended by bushfires and the coronavirus outbreak, after standing at 851 points in the fourth quarter of last year.

Trade credit broker NCI says the index move highlights the insurance sector’s action over the past two months to lower risk exposure in the face of the COVID-19 pandemic, while debt collections and overdue invoices are also up.

“There are many challenges facing Australian businesses,” NCI MD Kirk Cheesman said. “The NCI TCRI aims to provide the market with an early warning sign of trends to come.”

The number of overdue payment debts rose 8%, while the number of companies escalating overdue invoice payments to third-party collection jumped 15% to the highest level since the beginning of the index in 2012.

Index scores reflect data from more than 3500 companies on transaction insurance claims received from businesses, collection actions and overdue invoice payments. The higher the points, the riskier the trade credit environment.

“While the overall value and number of insurance claims submitted by Australian businesses to cover bad debts from their suppliers actually fell by 30% in the last quarter, the trends on overdue invoices and on collection referrals both signal a very challenging autumn ahead of Australian businesses as the full impact of the COVID-19 downturn filters through,” NCI says.

“The credit limit reductions for many Australian businesses will also likely impact on business’s ability or willingness to trade with customers further hampering the economy over the next quarter.”

Claims received in the March quarter totalled $30.1 million and had an average value of $101,000. The value of claims paid was $21.6 million.

Building and construction was the top sector for trade credit claims received, followed by labour hire, finance and manufacturing.

The index reached a record high of 913 in the third quarter last year, after climbing during the previous 12 months.