CreditorWatch has released its Business Risk Index (BRI) for March, which indicates that the ongoing cost-of-living and business cost burdens are still resulting in elevated payment defaults among Australian businesses, particularly in large industries.
As cost-of-living pressures continue to weigh on Australian households, businesses with reliance on discretionary spending are bearing the brunt.
Because people are not committing as much spending, most businesses like hospitality, retail, and construction are on the decline, and there’s an increase in insolvencies and payment default. The report points out ongoing impacts of pressures in the economy and shows the alarming trend to affect the entire business environment within the next several months.
The latest data shows invoice payment defaults have surged by 42% compared to March 2024. Insolvencies also saw a rebound after a drop at the end of 2024, with a 17% year-on-year increase in March. These payment defaults are often seen as a key indicator of future insolvencies.
The pressure on businesses continues to mount, as consumer demand remains constrained due to high interest rates, rent increases, previous price hikes, and slowing wage growth. Meanwhile, costs for businesses have sharply risen across rents, labor, insurance, and interest rates. The construction sector, in particular, has seen substantial increases in building materials prices.
Business closures soar in discretionary spending sectors
CreditorWatch’s latest findings show that six of the top seven industries with the highest business closure rates in the past 12 months are heavily dependent on discretionary consumer spending. These sectors and their closure rates (compared to the industry average of 5.3%) include:
- Food and Beverage Services/Hospitality – 9.4%
- Administrative and Support Services – 6.4%
- Arts and Recreation Services – 6.3%
- Retail Trade – 5.8%
- Construction – 5.7%
- Accommodation – 5.4%
The hospitality sector continues to struggle the most, with 9.4% of businesses closing their doors in the 12 months to March 2025, a record high.
CreditorWatch CEO Patrick Coghlan commented: “As the cost-of-living crisis drags on, we are seeing a growing impact on businesses, particularly those relying on discretionary consumer spending. Households are cutting back on entertainment, retail purchases, services like cleaners and gardeners, and even delaying big-ticket items such as building new homes. Small businesses, with smaller cash buffers, are particularly vulnerable.”
Insolvencies and tax debt defaults rise
Insolvencies remained elevated in March, with figures broadly unchanged from February but 17% higher than in March 2024. As a share of total company registrations, insolvencies are still well above pre-COVID rates.
CreditorWatch Chief Economist Ivan Colhoun explained that rising US tariffs are contributing to financial market volatility, with impacts on both consumer and business confidence. These uncertainties are leading to delays in purchases, hiring, and investment decisions, further pressuring struggling businesses.
Meanwhile, the number of businesses facing tax debt defaults with the ATO continues to rise, with approximately 30,000 businesses now owing more than $100,000. Construction and food and beverage services are the sectors most affected by tax defaults. The decline in businesses paying off tax debts or entering into payment plans since October 2024 may signal an increase in insolvencies in the coming months.
Regional business risk analysis
The March BRI results also highlighted significant regional disparities in business risk across Australia. Businesses in Western Sydney are showing the highest levels of risk, with six of the highest-risk regions located in Sydney’s west. These areas face high personal insolvency rates, lower-than-average income levels, and high commercial rents and property prices.
In contrast, Norwood-Payneham-St Peters in Adelaide is the lowest-risk region, with a forecast business closure rate of 4.5%. Other low-risk areas include regional Victoria and North Queensland.
CreditorWatch’s outlook on future business conditions
As businesses navigate an uncertain landscape marked by changing US tariff policies and financial market volatility, CreditorWatch’s outlook remains cautious. The impact of these changes, combined with ongoing cost pressures, is expected to keep payment defaults and insolvencies elevated in the coming months.
However, with the expected mid-2024 income tax cuts and potential interest rate reductions from the Reserve Bank of Australia (RBA), there may be some relief on the horizon. Despite these potential positive factors, the uncertainty stemming from US tariffs will continue to be a significant challenge for many businesses.
CreditorWatch advises businesses to remain diversified, maintain financial reserves, and closely monitor the productivity of their processes to weather the ongoing economic pressures.
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