There are many reasons for financial stress in Australia as the reason that businesses may be waiting for invoices to be paid, unfortunately. Sometimes it can be as a result of the individual debtor facing financial hardship, which may be as a result of increased rent, interest rate hikes, or even the increase in the cost of living more generally.
The Australian bureau of statistics collects data [1] to better understand the financial stress challenges that many Australians find themselves contending with, in an attempt to provide information that can be used by Policy makers to shape legislation to better reflect current societal challenges.
While having clearly defined payment policy in place, one clearly communicated to your client or customer, is a hugely important part of being paid on time, it is not always enough.
To understand how to best come to a mutually beneficial payment plan, we set out the below information which may be useful in negotiations for payment, so you might be able to gather a more holistic view of the issues surrounding debtors, and strike a payment plan that they will actually stick to.
While you may not always know whether or not the debtor is a renter, the below may be beneficial in the event you do know.
Financial Stress - Renting and Renters
According to the ABS, in 2019-2020, 31% of households rented their home at the time of the survey. [2]
In looking further at the costs that renters have in their daily life, it was further discovered that on average, renters have additional weekly expenses in the range of $379.
Within Queensland specifically, the financial stress of housing expenses are approximately $300. Between the years of 1999 - 00, and 2019-2020, the following changes took place:
- Cumulatively all landlord types increased, 27% to 31%.
- Private landlord increased from 20% to 26%
- State housing decreased from 6% to 3%
Looking more broadly, in relation to financial stress, the ABS can confirm that average household debt in Australia grew by 7.3% to reach $261,492 in 2021-2022.
This figure is higher than the average household gross disposable income, which also grew by 3.7% to reach $139,064. These figures show that while disposable income has increased, it is not keeping pace with the rate of growth in household debt.
The ABS financial stress data also revealed that the highest income quintile holds 1.98 times the debt, and 2.07 times the gross disposable income, compared to the average of all households.
On the other hand, the lowest income quintile holds 0.43 times the debt, but has 0.39 times the gross disposable income compared to the average of all households.
Interestingly, the fourth income quintile had the largest discrepancy between debt (1.26) and gross disposable income (1.11) when compared to the average of all households.
In terms of liquidity buffers, deposit assets (such as savings as well as the offset accounts with banks) provide a way for households to cover expenses that may not be covered by disposable income, for some people in some situations.
In 2021-2022, the average deposit assets held across all Australian households grew by 11.6% to reach $144,669.
This figure was higher for the second income quintile, which had 0.66 times the deposit assets and 0.52 times the debt compared to the average of all households.
The lowest and highest income quintiles also had higher deposit assets ratios compared to their debt ratios, relative to the average of all households.
Financial Stress - Fine Related Debts, such as SPER
In Queensland, in relation to financial stress, some debts which have been accrued as a result of a fine from the state government can be paid off through the SPER program (State Penalties Enforcement Registry).
In 2022, SPER collected $164.2 million [3] worth of debt which was a result of a state issued fine.
Debts Rising in Rural Areas
The Queensland government recently found that there has been a rise in the debts of those living in rural Queensland [4]. As of 19th of August 2022, the rural debt in Queensland has risen by 25.97 percent since 2019, according to the Queensland Rural Debt Survey.
Among those individual debtors, on average the debt rose by 32.67 percent to $1.39 million.
The largest contributing industry in this debt is the beef industry, which it’s self carries approximately 60 percent of the increase in the debt.
Other industries which are contributing significantly to the amount of rural financial stress debt include cotton debt totally $1.69 billion, as well as grazing, totally $1.68 billion.
The Western downs and the central highlands region represent the largest group of debtors, amounting to approximately just over 35 percent of the total rural debt in Queensland, totally $8.51 billion.
After this, the southern Coastal Curtis to Moreton region has significant debt, amounting to approximately $5.46 billion or 22.7 percent.
In third position is the Eastern Darling Downs region which has approximately $3.34 billion which is 13.89 percent of the total rural Queensland debt.
Financial Stress - Working Arrangements
Further attention should be brought to the types of employee and employer relationships [5] that currently exist. In August 2021, the ABS was able to determine that there were 2.7 million casual employees in Australia, which makes up an estimated 20% of all employed Australians.
In relation to financial stress of workers, 21% of employees did not have a minimum guaranteed hours, this percentage is an increase from when data was last collected in 2016. At the time of collecting data, 7 million people were working full-time, and 4 million people were working part time.
Overall, these figures highlight the increasing financial burden of debt faced by many Australian households.
Further, it highlights the importance of maintaining strong liquidity buffers to help cover unexpected expenses, however for some middle to low-income workers, as well as those higher income workers who work in industries that are somewhat volatile, it is not always possible to maintain these buffers.
It is important for households to carefully manage their debt and budget effectively, to ensure they are able to meet their financial obligations.
Even for those who do have little to no financial buffer, it can still be advisable in some situations to try and come to an agreement to repay a debt in a timely manner, even if it is thorough small increments. In coming to a payment plan arrangement, you might need to provide information such as income, or some form of proof of how much you are earning, or in the event you are a casual worker, perhaps proof of past income or some other form of proof which indicates what you are likely to earn.
There may also be a need to prove what assets you have, so that there can be a discussion around what can be reasonably expected in the way of a payment plan.
Financial Hardship & Debt Collection
Financial hardship is becoming more and more prevalent in our society today. Unfortunately, at present, many are feeling tremendous financial pressure given the rising cost in living expenses. With shortages on many items, rising transportation costs and unseasonal weather, prices are increasing and sadly this is just the beginning.
With the cost of basic food and groceries, fresh fruit and vegetables, the major increase at the bowser, electricity prices, private health, and various other insurances and of course the hike in interest rates, it is understandable that many are feeling overwhelmed particularly when there has been no increase to the minimum wage to accommodate for these increases.
What is Financial Hardship?
Financial Hardship is described as a person’s inability to pay their bills or loans by the due date.
In accordance with the National Credit Code (NCC), with consumer credit law, such as home loans, credit cards and personal loans, individuals have a legal right to seek assistance when they are suffering financially.
Financial hardship is usually short term and can be caused by a change in financial circumstances, or it could be the case that the individual could not afford the loan or repayments in the first place. If this is the case, it is imperative that legal advice is sought as a matter of priority.
Most finance providers will allow a period of 3-6 months, with a review at the end of this period and the possibility of a further extension if needed. A further extension is however dependent on whether new issues have arose causing further hardship.
Falling behind on loan repayments or worrying about upcoming bills can be distressing, therefore understanding your rights in these situations can be extremely helpful.
Ask for a Payment Arrangement
Seeking an arrangement on the grounds of financial hardship is a viable option and is required to be reviewed by the creditor. The creditor is then required to provide a fair response.
If your intention it to put forth a repayment offer or a variation of some description, you need to review your finances and figure out how much is feasible. Once you have done this, put forth your repayment offer to the creditor’s hardship department.
Once notice of hardship is provided, the creditor is required to cease action until a response is provided. In order for the creditor to assess your offer, you may be required to provide information in relation to your financial situation, namely your income, expenditure, and information around what has caused the hardship i.e., loss of employment, decrease in hours, health issues, separation, divorce, decline or closing down of a business or even the death of a family member.
Its also important to keep a record of any telephone calls made and keep a folder with all documentation relating to your hardship case as it may be required down the track if you are unable to find a resolution.
A response should be provided by the creditor within 21 days unless of course further information has been requested to support your hardship. The creditor will either accept your repayment offer or it will be declined detailing the reasons why and you will be advised of your right to review the decision made.
If the creditor has accepted your repayment offer, you must comply with it and payments should be made on time. If you find you are still having trouble complying with the arrangement, despite the variation, contact the creditor to discuss further options.
In the instance where a payment arrangement has been rejected by the creditor, you can put forth an alternative offer, seek to have the decision reviewed by the Australian Financial Complaints Authority or you can seek legal advice.
Financial Hardship in Credit Law
If pursuant to credit law you are unable to seek a variation based on hardship, contact should still be made as there is no harm in asking for an extension or having your payments reduced. If this is agreed to, make sure it is documented and you receive confirmation in writing.
If the creditor is still unwilling to accept a variation and you are unable to find a resolution, contact a financial counsellor and they will be able to assist you. A financial counsellor will help you get your finances back in order. Alternatively, legal advice should be sought if it is the case that proceedings have already commenced.
Unfortunately, by the time you apply for hardship, your credit file will already have been affected. Once a default is placed on your credit file, it can strongly affect your ability of obtaining finance or loans in the future.
Given this, if it can avoided, its better that you act sooner rather than later, for example, if you have a loan repayment due but you know you are unable to make the payment due the due date, contact the lender immediately and do not let this be a hinderance in the future.
If court action is being threatened, you should immediately prepare and send a request in writing seeking a variation to your repayments and/or contract or lodge an application with the Australian Financial Complaints Authority and ensure you receive confirmation of the complaint being lodged via email. If you have a complaint open, legal action cannot commence.
[1] https://www.abs.gov.au/ [2] https://www.abs.gov.au/statistics/people/housing/housing-occupancy-and-costs/latest-release [3] https://www.data.qld.gov.au/dataset/sper-debt-by-sa4-regions-in-queensland/resource/a5528b74-1b99-47b2-a585-7e26db891fa1/view/7bc9a64c-1dbd-49f1-af16-38357bf9daa8 [4] https://statements.qld.gov.au/statements/95996 [5] https://www.abs.gov.au/statistics/labour/earnings-and-working-conditions
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