Australian businesses are entering 2025 under significant financial strain, with data from CreditorWatch’s November Business Risk Index (BRI) showing increases in insolvencies, payment defaults, and legal actions.
Small businesses are especially vulnerable as they contend with higher operating costs, elevated interest rates, and reduced consumer spending.
CreditorWatch’s analysis highlighted several key trends:
CreditorWatch chief economist Ivan Colhoun commented that these challenging conditions are unlikely to ease significantly before the Reserve Bank of Australia (RBA) begins reducing interest rates. Rate cuts could start as early as February 2025, but this depends on inflation trends and upcoming economic data.
“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,” he said.
He noted that insolvency risks are rising due to factors such as falling commodity prices, changes in immigration policies, and weaker demand in industries like mining and education.
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Voluntary and involuntary business closures, along with de-registrations and ASIC strike-offs, are trending upward. The rate of involuntary administrations among private companies now exceeds pre-pandemic levels.
Late payments are also increasing, reflecting the impact of higher business costs and reduced consumer spending. Food and beverage services and construction are among the industries experiencing the greatest delays in payment settlements.
Financial risks are unevenly distributed across the country. Businesses in Western Sydney and South-East Queensland face the highest failure rates, while regions like inner Adelaide and parts of regional Victoria show comparatively lower risks.
Payment defaults have risen across nearly all sectors, with construction and food and beverage services particularly affected. Elevated defaults are often an early warning of financial distress and potential insolvencies.
The ATO’s stepped-up enforcement of tax debt collection since late 2023 has amplified financial stress for businesses, particularly small enterprises. Court actions remained high through most of 2024, with collections activity expected to continue at a strong pace in 2025.
There are signs of potential relief on the horizon. Interest rate cuts, combined with government measures to ease living costs, could help improve business and consumer finances over the coming months.
However, CreditorWatch warns that the benefits may take time to materialise in lower payment defaults or fewer insolvencies.
