SA Businesses Struggling to Repay Debt

According to Experian’s business debt index (BDI), the financial wellbeing of South African businesses worsened during the 2^nd quarter of 2016. Particularly small businesses are struggling to afford debt repayments.

During the 2^nd quarter, the credit bureau’s BDI recorded a below-zero reading, indicating severe business debt stress. This primarily resulted from the impact of slow economic growth, Managing Director at Experian South Africa, Michelle Beetar said.

Increasing Financial Strain

High levels of debt put financial strain on businesses, often leading to job cuts. With the exception of agriculture and mining, all sectors suffered worsening debt conditions.

Even with the decline in financial wellbeing during the 2^nd quarter, slight inflationary relief brought by the stronger rand and lower fuel prices could result in the BDI improving during the following quarter, said Beetar. From the 1^st quarter to the 2^nd, the average number of outstanding debtors’ days increased from 52.5 to 53.5 days. This shows an irrefutable trend of increasing financial strain, said Experian.

Struggling to Meet Obligations

Additionally, the number of outstanding debtors’ days increased sharply to 55 in June. This is the highest it’s been since the 1^st quarter of 2010, when the economy started creeping out of the recession. From the 1^st to the 2^nd quarter, the ratio of debt owed for over 90 days compared to debts owed for less than 60 days increased from 14.3% to 15.4%.

“A growing number of businesses’ financial position has taken such a turn for the worse, with many unable to meet their debt commitments,” said Beetar.

Businesses that could not afford to pay debtors within a month were ever more struggling to meet their obligations in subsequent months too, Beetar noted.