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19% invoice drop, 55% payment defaults: CreditorWatch Index

In January, CreditorWatch’s Business Risk Index (BRI) showed a historic low in the average value of B2B invoices.

Despite the usual slowdown from December to January, invoices dropped by 19% compared to last year. Looking ahead, CreditorWatch predicts even tougher trading conditions for businesses in 2024 due to subdued confidence levels and high input costs.

19% invoice drop, 55% payment defaults: CreditorWatch Index

Typically, trading activity dips from December to January, but this year, the average value of invoices plummeted by 19% compared to January 2023. Even the anticipated spike in December trading failed to materialize. This poses a significant challenge for businesses relying on pre-Christmas trade to sustain them throughout the year.

CreditorWatch forecasts tougher trading conditions for businesses in 2024, with subdued business and consumer confidence alongside elevated input costs.

The drop in order values aligns with the subdued Christmas trading period experienced by retailers, where sales dipped by 2.7% from November to December. Instead of the expected surge, spending in department stores hit its lowest point since June, and cafes and restaurants also experienced a decline in trade towards the year’s end.

The rate of external administrations continued to climb in January, surpassing pre-COVID levels and showing no signs of abating.

CreditorWatch CEO Patrick Coghlan warns that 2024 will be an exceptionally challenging year for Australian businesses, driven by high inflation and interest rate increases, which are dampening demand for goods and services.

Key insights from the January Business Risk Index include:

  • A 19% year-on-year decrease in the average value of Australian business invoices.
  • A 55% year-on-year increase in B2B trade payment defaults.
  • Consistent levels of external administrations above pre-COVID levels.
  • Significant declines in credit enquiries as trade activity slows.
  • Court actions returning to pre-COVID levels.

CreditorWatch Chief Economist Anneke Thompson underscores the low levels of consumer and business sentiment recorded in industry surveys, suggesting that the first half of 2024 will present unprecedented challenges for many businesses.

B2B trade payment defaults remain a worrying sign for the economy, with January figures 55% higher than in January 2023. This indicates growing impatience with late payments, emphasizing the critical importance of cash flow management.

Regions with the lowest levels of business insolvencies typically boast older populations and established businesses with lower debt levels. Conversely, regions with higher insolvency rates tend to have younger populations and are more susceptible to rising interest rates.

Looking ahead, the Federal Government’s measures to curb population growth, particularly through student visas, will impact the economy. While this may ease rental demand, sectors reliant on overseas students for labor, such as food and beverage and retail, are expected to face challenges due to slower growth in organic demand.

Source: CreditorWatch Business Risk Index

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Yajush Gupta

Yajush Gupta

Yajush is a journalist at Dynamic Business. He previously worked with Reuters as a business correspondent and holds a postgrad degree in print journalism.

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