Business insolvency in Australia jumped by almost 20 percent over the past 12 months, with forward indicators pointing to that number rising further.
The March CreditorWatch Business Risk Index showed ongoing cost-of-living and cost-of-doing-business pressures continued to drive elevated payment defaults between Australian businesses across a number of key sectors.
CreditorWatch Chief Economist Ivan Colhoun said invoice payment defaults were 42 percent higher than in March 2024 and, after an end-of-year drop, insolvencies bounced back in February, up around 17 percent year-on-year in March.
“Payment defaults are a key forward indicator of insolvencies,” Mr Colhoun said.
He said previous price and cost rises were a double-whammy for many discretionary businesses, with consumer demand constrained on the one side due to high interest rates, rent increases, prior price increases and slowing wages growth.
Mr Colhoun said, at the same time, business costs, such as rents, labour, interest rates and insurance had risen sharply, and for the construction sector, building materials prices had recorded very large increases.
He said US President Trump’s tariff changes were already having significant effects on financial markets, especially 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.”
He said one helpful aspect was that the RBA was more likely to reduce interest rates at its mid-May Board meeting.
CreditorWatch CEO Patrick Coghlan said the data on business closures showed how desperately Australian households need of cost-of-living relief.
“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,” Mr Coghlan said.
“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.”
Read the full report: Business Risk Index March 2025.
