The latest CreditorWatch Business Risk Index (BRI) for March 2024 has exposed a worrying trend for Australian businesses, with external administrations hitting a record high.
Factors such as cost pressures, skilled labour shortages, and declining consumer demand continue to challenge businesses across the country.
B2B payment defaults have also surged, although slightly down from February’s record high, they are still up by 22.6 per cent year-on-year, indicating increasing difficulty for businesses to settle outstanding invoices.
Court actions are on the rise and are gradually returning to pre-COVID levels.
In a detailed analysis, CreditorWatch revealed that the construction sector dominates the Australian Taxation Office (ATO) tax debt defaults.
Of the over 15,000 tax debt default records, 23.8 per cent are from the construction industry, followed by professional, scientific, and technical services at 12.5 per cent, and food and beverage services at 10.7 per cent.
CreditorWatch Chief Economist, Anneke Thompson, highlighted that the surge in external administrations reflects the cost pressure on businesses and the cost-of-living pressures on consumers.
CreditorWatch CEO, Patrick Coghlan, noted that businesses are currently facing a range of heavy impacts, especially those exposed to discretionary spending.
The mining sector has also experienced increased insolvencies and late payments due to various pressures, including labour shortages, unfavourable exchange rates, and a slump in lithium and nickel prices.
While the sector benefits the Australian economy, individual businesses within the sector are subject to high-risk trading due to reliance on specific mines.
Despite a seasonal uptick in the average value of invoices in March, trading conditions remain challenging for small and medium-sized businesses, particularly in construction, retail trade, food and beverage services, and mining industries.
Looking ahead, businesses should prepare for weak consumer demand for the remainder of 2024 and continued high debt financing costs, as cash rate cuts in Australia are now looking remote due to high inflation figures in the USA.
