New research released by credit bureau illion has revealed that business conditions in Australia are likely to deteriorate through 2023 based on a noticeable rise in overdue trade invoices and debt collection.
The research also found that the food services and construction industries are showing the highest failure risk at 14 per cent and 11 per cent respectively, closely followed by the retail services and transport sectors, both at 10 per cent risk of failure.
At the other hand, financial and insurance services, as well as professional and technical services both at 3.5 per cent, and wholesale trade and manufacturing at four per cent having the lowest risk of business failure.
“When we focused on high-risk businesses, irrespective of their industry sector, the research found that 57 per cent of all outstanding trade invoices were over 60 days overdue in March 2023, many times higher than the overdue rate across all Australian businesses, which is only around 6 per cent,” said Barrett Hasseldine, Head of Modelling at illion.“Overdue trade obligations were therefore strongly indicative of business failure risk.”
Hasseldine added, “In addition, high risk businesses also suffered a large deterioration in overdue trade payments between July 2022 and March 2023, climbing from 42 per cent to 57 per cent. This deterioration in invoice payments was especially notable in the last quarter of 2022 and the first quarter of 2023, rising from 44 per cent in November 2022 to 57 per cent in March 2023. With already-high underlying financial stress continuing to climb, and no indication of any improvement through 2023, Australia should expect to see overdue trade payments and higher business failure risk continuing through 2023.”
The research noted that in the food services industry, the percentage of substantially overdue trade payments now exceeds 62 per cent (up from 52 per cent in July 2022). In the retail sector it is now at 68 per cent (up from a range of 40-50 per cent during 2022).
“In both industries, high-risk businesses appear to have struggled for some time now but have also deteriorated substantially in the last six months,” Hasseldine commented. “This trend in overdue payments suggests that the recent economic shock has had an especially significant impact on retail businesses, potentially resulting from falling revenues post-Christmas and rising input costs from shop rents, power prices, and inventory costs.”
He added, “This recent rise in overdue trade payments can also be seen in vulnerable construction businesses, up from 29 per cent in September 2022 to 42 per cent in March 2023, and is likely to be attributed to the fall in cash flow from rising building supply costs and contract labour costs coinciding with fixed contracted project revenues. The financial risks besetting the food services, retail and construction sectors have now also coincided with a significant rise in debt collection activity, most notably in the construction industry, which has seen a threefold rise in daily collections activity in Q1 2023, compared with the previous nine months.
Hasseldine further said, “Similarly, the retail and food services sectors have had 75 per cent rises in collections activity. This contrasts with the Professional Services and Financial Services sectors where we have seen no change in collections activity over the last 12 months.”
