Business payment defaults are rising fast, insolvencies have bounced back, and consumer cost-of-living pain is now rippling heavily through the economy, according to new data from CreditorWatch.
The credit reporting agency’s March Business Risk Index (BRI) shows invoice payment defaults were 42 percent higher than in March 2024. Insolvencies also rebounded in February, rising another 17 percent year-on-year in March. Historically, payment defaults are a strong lead indicator for business collapses.
The same cost forces continue to dominate. Consumer demand is still squeezed by high interest rates, rent hikes, prior price rises and stagnant wage growth. On the supply side, many businesses are battling soaring operating costs. Labour, rent, insurance and interest costs have jumped, while the construction sector in particular is grappling with a steep rise in the price of building materials.
Discretionary spending plunge hits small businesses hardest
CreditorWatch’s data reveals that six of the seven industries with the highest rate of business closures in the 12 months to March are directly linked to discretionary household spending.
These include:
- Food and beverage services or hospitality (9.4 percent)
- Administrative and Support Services (6.4 percent)
- Arts and Recreation Services (6.3 percent)
- Retail Trade (5.8 percent)
- Construction (5.7 percent)
- Accommodation (5.4 percent)
All of these are now closing at or above pre-COVID levels. Hospitality continues to bear the brunt, with a record 9.4 percent of businesses in the sector shutting in the past year.
CreditorWatch CEO Patrick Coghlan says the figures reflect how deeply the cost-of-living crisis is cutting into everyday life.
“As the cost-of-living crisis drags on we are seeing a bigger and bigger impact on all businesses, but particularly those that rely on the discretionary spending of consumers. Households don’t have many levers they can pull to save extra money, but they can certainly reduce costs in areas such as entertainment spending, retail purchases, services such as cleaners and gardeners and, on a larger scale, put off building a new house.
“We particularly feel for small businesses that typically have smaller cash buffers than larger businesses and are less able to take measures to cut costs such as laying off staff or closing locations.”
Insolvencies are back on the rise, with more expected
Insolvency figures in March were steady compared to February but still 17 percent higher than this time last year. Once adjusted for the growing number of company registrations, insolvency levels remain well above pre-pandemic levels, though still lower than the peak rates seen between 2002 and 2012.
The major pressure points remain rising costs and unpaid tax debt. Many businesses are struggling to pay down large tax bills owed to the ATO, which has resumed full collections activity since the pandemic. Around 30,000 businesses now have tax defaults of more than $100,000, a level that has driven a spike in insolvency over the past 18 months. Construction and hospitality are once again the sectors with the highest tax default rates.
CreditorWatch Chief Economist Ivan Colhoun points to growing uncertainty around US trade policy as another concern.
“President Trump’s tariff changes are already having significant effects on financial markets, with significant volatility in share prices and the Australian dollar.
“All of the above are immediately damaging to consumer and business confidence and to the extent these uncertainties cause either consumers or businesses to delay purchases, hiring or investment decisions, the impact is a slowdown in economic activity, which will pressure weaker businesses.
“Along with pressures from previous cost increases, this is likely to keep payment defaults and insolvencies elevated in the months ahead. One helpful aspect is that the RBA is more likely to reduce interest rates at its mid-May Board meeting.”
Business stress concentrated in Western Sydney
CreditorWatch’s BRI shows Western Sydney remains the most at-risk region in the country. Six of the top 10 highest risk areas are in Sydney’s west, including Bringelly-Green Valley, which has a forecast average business closure rate of 7.9 percent over the next 12 months.
These regions are typically marked by lower income households, high levels of personal insolvency and elevated rent or property costs. By contrast, the lowest-risk region in Australia is Norwood-Payneham-St Peters in inner Adelaide, with a projected closure rate of just 4.5 percent. Other low-risk areas are concentrated in regional Victoria and North Queensland.
Among the capital cities, Adelaide has the lowest expected failure rate in its CBD (5.2 percent), followed by Perth (5.3 percent), Melbourne and Brisbane (5.8 percent each), and Sydney (6.3 percent).
Choppy waters ahead
While some recent economic data has steadied, risks are piling up. Business payment defaults and insolvencies remain at high levels, even as mid-2024 tax cuts and the RBA’s February rate reduction begin to flow through.
However, the US trade war threatens to wipe out those gains. With Trump’s tariff measures still evolving and markets reacting sharply, businesses may find it difficult to plan, invest or hire with confidence.
Some may benefit from cheaper imports, but local manufacturers of those products will come under pressure. For most businesses, especially smaller ones, the strategy is likely to be endurance.
As CreditorWatch notes, this is a moment for businesses to focus on diversity, resilience and efficiency. A spread-out customer base, emergency cash reserves and tight processes will be key advantages in the months ahead.
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