How well can a business do in the lead-up to 2024?
CreditorWatch has released its September Business Risk Index (BRI) report, which shows business activity picking up. However, the average value of B2B invoices was down 42% year over year and was well below pre-pandemic levels.
The slight upward trend seen from August to September, which is in line with the lift in forward seen in the NAB Business survey, became a minor lift as a following downward trend came as a long way off, which CreditorWatch has noted to be “due in large part to persistently low consumer demand.” Amid a high-inflation environment, continuous low invoice values are concerning.
“The average value of invoices is a critical metric on the health of Australian businesses as it impacts companies along the supply chain in multiple industries. CreditorWatch’s other key business indicators, such as trade payment defaults, credit enquiries and court actions, also reflect the challenging conditions confronting businesses,” the report said.
Another finding is that Western Sydney has eight of the top 20 regions in Australia most at risk of business failure. Sixteen of the 20 worst performing NSW regions on the list are also in Western Sydney.
Challenging conditions make consumers reluctant
“This region is very sensitive to interest rate changes, given the relatively high levels of debt among both businesses and households, and lower than average incomes,” the report said. “Consumers in Western Sydney are far more likely than the average consumer to be reducing their discretionary spending, and this has flow on effects for businesses.”
Patrick Coghlan (pictured above left), CEO at CreditorWatch said the easing of inflation could signal a positive business outlook in the lead up to 2024 but has noted conditions could prove to be challenging. “Rents, energy prices and the cost of services are keeping the heat in inflation but it’s encouraging to see some of the other drivers normalising. However, our forecast is still for the business failure rate to increase over the next 12 months,” he said.
Anneke Thompson (pictured above right), chief economist at CreditorWatch, said small businesses could be highly impacted by the current business conditions, especially when it comes to declining consumer spending, which could remain subdued until mid-2024.
Other key insights for September:
- B2B trade payment defaults continue to increase, up 57% year over; payment defaults are a key predictor of future business failures
- External administrations declined 24% from August to September
- Credit enquiries down 6% month over month
- Court actions are up 6% over the last quarter
- CreditorWatch’s national business failure rate prediction for the next 12 months is for an increase from the current rate of 4.54% to 5.76%
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