Credit reporting bureau CreditorWatch has released the November results for its Business Risk Index (BRI) with all key metrics pointing to an extremely challenging start to 2025 for Australian businesses, particularly small businesses.
The Index found that insolvencies, the business failure rate, B2B payment defaults and court actions are all on the rise as businesses battle a combination of cost increases, high interest rates, wage increases, skilled labour shortages, increased ATO enforcement activity and soft consumer demand.
In particular, insolvencies are at record highs in number and are up 57 per cent for the year to November while average business failure and closure rate for all sectors is currently at 5.1 per cent, the highest rate since August 2020. The failure rate is expected to be 5.6 per cent over the next 12 months.
B2B payment defaults, a leading indicator of potential insolvency, are also at record highs and have more than doubled in the past year.Court actions remain elevated as the ATO maintains its ramped-up debt recovery efforts.
CreditorWatch Chief Economist Ivan Colhoun shared that the 2025 outlook is likely to remain challenging until the RBA delivers some interest rate relief. This was previously not expected before May 2025, but the December RBA Board Meeting has opened the door to an easing in February provided the Board gains greater confidence in its inflation forecasts from the Q1 CPI at the end of January and other data releases.
An expected easing cycle over 2025 is expected to be helpful for households and businesses but is only expected to be moderate in size.
“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,” Calhoun said,
CreditorWatch also found that late payments and arrears are trending higher and have risen relatively sharply in recent months, reflecting the cumulative effects of higher costs of doing business and cost of living and the lagged effect of monetary policy. Reflecting this, Average Days Past Due – the time businesses wait until their debtors pay invoices has lengthened over the past year.
Late payments and insolvencies have also both risen more sharply since the ATO stepped up its collections’ activity in October 2023. While some have noted that such rise is a result of the ‘catching up’ being done by the ATO, thus overstating the underlying situation, the data highlighted how the ATO’s actions affected the businesses in question and potentially other business relationships.
Alongside data that court actions remained elevated in recent months – though falling in November – the Business Risk Index also pointed out that collections activity will remain a source of pressure for businesses for some months to come on top of underlying challenging macro fundamentals.
Given the current situation, CreditorWatch CEO, Patrick Coghlan, commented that this Christmas will be another challenging one for Australian businesses, particularly those in consumer facing sectors.
“Our data, on multiple levels, shows businesses are under increasing stress,” Coghlan said. “Despite these headwinds, Australian businesses remain resilient.”
“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,” he further said.
“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,” Coghlan concluded.
