The latest Business Risk Index (BRI) from CreditorWatch revealed that overdue B2B payments have hit their highest level since March 2021, as businesses grapple with challenging economic conditions, including rising interest rates and costs.
High borrowing costs and reduced consumer spending have caused significant strain, especially in interest-sensitive sectors.
Construction and food services are among the hardest hit, with payment arrears reflecting these pressures.
However, late payments are still below pre-COVID levels, suggesting the current downturn, while concerning, is not as severe as in previous years.
The construction industry leads in payment defaults at 1.77%, closely followed by hospitality at 1.67%.
CreditorWatch’s data highlighted the ongoing struggles in these sectors, with the Australian Taxation Office (ATO) resuming enforcement actions in 2023, adding to the construction sector’s financial stress. Meanwhile, cautious consumer spending is affecting food and beverage businesses.
The media, telecommunications, and utility sectors reported the highest overdue payment rates, at 5.9%, 5.7%, and 5.2%, respectively.
Mining is also showing rising payment defaults, driven by lower commodity prices and reduced exports, with gold being a rare exception.
The lowest business failure rates are found in Adelaide’s Norwood-Payneham-St Peters area, with just 3.5% over the past year.
Regional Victoria, North Queensland, and northern Sydney suburbs also show low failure rates. In contrast,
Western Sydney and South-East Queensland face the highest business risks, with Bringelly-Green Valley reporting an 8.2% failure rate.
Court actions by creditors are up 13.7% over the past year as banks and the ATO resume debt collection activities. At the same time, credit enquiries have remained flat, reflecting weak trading conditions across the economy.
Food and beverage services businesses top the list for outstanding ATO tax debts above $100,000, with a 1.95% rate.
Construction follows at 1.29%, while the transport and postal sectors report 1% of businesses with similar tax debts.
“Ongoing economic impacts such as weaker consumer demand are clearly bringing more pressure to bear on Australian businesses,” said CreditorWatch CEO Patrick Coghlan (pictured above).
Coghlan noted that construction and hospitality sectors are facing particularly high default and arrear rates, aligning with declines in building approvals and flat consumer spending in cafes and restaurants.
The broader economic outlook is influenced by high interest rates, low unemployment, and cost-of-living pressures.
Although recent income tax cuts have shown signs of bolstering consumer confidence and retail sales, inflation remains a concern.
The Reserve Bank has indicated that interest rates are unlikely to drop before early 2025.
Long-term factors shaping Australia’s economy include technological advances, an aging population, the transition to clean energy, geopolitical shifts, and growing inequality.
Global economic trends offer some optimism, with overseas rate cuts and China’s economic stimulus improving the chances of a “soft landing” for global markets, CreditorWatch reported.
Read the CreditorWatch blog here.
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