Business insolvencies at ‘record highs’

CreditorWatch released its November Business Risk Index, with data showing insolvencies are at “record highs in number,” up 57 per cent since November 2023.

Further, the average business failure and closure rate across all sectors is sitting at 5.1 per cent. This is the highest it has been since August 2020.

As we enter the New Year, an early forecast is predicting it will only get worse, with the failure rate expected to hit 5.6 per cent in the coming year.

A variety of issues are creating issues for Aussie businesses. B2B payment defaults and elevated ATO debt recovery are among the influencers, said CreditorWatch chief economist Ivan Colhoun.

“An expected, easing cycle over 2025 will be helpful for households and businesses but is only expected to be moderate in size, without a more significant slowing in the labour market, which is not currently signalled. Businesses and consumers will still need to adjust to the elevated cost of doing business and cost of living, as well as current interest rates, for some months,” he said.

“These fundamentals are reflected in rising B2B payment default rates and, along with increased ATO enforcement activity, will continue to lead to increased insolvencies. Lower commodity prices, changes to government policy on foreign students and immigration are also likely to lead to less favourable conditions in the mining and education sectors and to slower population and demand growth in general.

“President Trump’s proposed significant tariff increases add another considerable layer of uncertainty to the overall business outlook globally and in Australia, especially for the manufacturing, wholesale and retail trade and transport and warehousing sectors.”

One potential sigh of relief may come in the form of an RBA cash rate decrease. With rate relief on the horizon, businesses may begin to recover. Until then, it may get worse before it gets better.

The worst affected industry is hospitality. Businesses have been struggling to maintain profitability amid ongoing cost pressures, said CreditorWatch, with higher interest rates, wage increases, labour shortages and softer consumer demand all playing a role.

“Our data, on multiple levels, shows businesses are under increasing stress. Despite these headwinds, Australian businesses remain resilient,” CreditorWatch CEO Patrick Coghlan said.

“We expect those exposed to discretionary spending such as hospitality, retail and arts and recreation will continue to find it particularly difficult, at least until consumers receive interest rate relief and increase spending again.

“The incidence of bad debts is going to increase in line with this, which makes it critically important for business operators to monitor the payment behaviour of their customers and change payment terms where necessary.”

[Related: Most industries see a fall in monthly business turnover]

Jack Campbell is the editor of Broker Daily. After graduating from the University of Wollongong in 2022, Jack began his journalistic career working on Broker Daily’s sister brand, HR Leader. In August 2023 he was made the news editor and worked alongside some talented journalists writing articles and recording podcasts.

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