This as business activity declines
The latest CreditorWatch Business Risk Index (BRI) for November has revealed a significant increase in external administrations across various sectors amid a slide in business activity.
The industries facing the highest increases include public administration and safety, where private security sector issues have led to a doubling of external administrations, and healthcare and social assistance, which experienced a 71% rise, primarily due to the failure of small businesses with National Disability Insurance Scheme (NDIS) contracts. The construction industry followed closely with a 59% rise attributed to persistent problems like project delays, cost blowouts, labour shortages, and supply chain disruptions.
The surge in external administrations came as the average value of invoices dropped 34% over the past year, indicating a substantial decline in overall business activity.
Other key insights from CreditorWatch’s BRI include the following:
- B2B trade payment defaults have surged by 57% since January, reflecting financial stress among businesses
- Year-on-year external administrations have increased by 26%, illustrating the widespread challenges faced by various sectors
- credit enquiries are on the decline, in line with reduced business activity and credit/loan applications
- court actions have seen an approximately 10% increase in the last quarter and an 18% rise year-on-year
Patrick Coghlan (pictured above left), CreditorWatch CEO, highlighted the challenging outlook for Australian businesses in 2024, citing multiple risk indicators, including declining invoice values and rising B2B payment defaults.
“The fact that almost every sector has seen double-digit increases in the rates of business failures across 2023 is truly shocking,” Coghlan said.
“When this is viewed in the context of our other key business risk indicators, such as the steep decline in the average value of invoices and the rise in B2B payment defaults, it is shaping up to be a very challenging 2024 for Australian businesses.”
Anneke Thompson (pictured above right), CreditorWatch chief economist, said substantial increase in interest rates and a decline in consumer confidence have led to a reduction in the average value of invoices.
“The velocity of the drop is very large, and indicates that business activity is seriously slowing down, particularly among small businesses,” Thompson said. “Very large migration numbers have potentially masked some of the slowdown in spending by consumers, as migrants have added to the overall pool of consumers.”
She also noted that the federal government has signalled its intention to curtail the substantial influx of migrants, introducing additional pressure on the retail sector. Conversely, the deceleration in migration is expected to contribute to a faster reduction in inflation compared to maintaining current migration rates.
On the brighter side, CreditorWatch reported that arts and recreation services stood out as the only industry with a decrease in external administrations, thanks to the normalisation of activities post-COVID, particularly in the entertainment sector. The food and beverage services industry also showed a more optimistic outlook with a modest 8% increase in the year to November.
Regional analysis revealed that the best-performing regions are those with lower commercial rents, older populations, and wealthier demographics, while the worst-performing regions are concentrated in NSW and Queensland, with industries like transport and retail food and beverage services facing significant challenges.
Business failure rate forecast
Looking ahead, CreditorWatch predicts a rise in the national business failure rate from 4.18% to 5.80% over the next 12 months. Sectors most at risk of payment defaults include food and beverage services (6.7%), transport, postal and warehousing (4.47%), and financial and insurance services (4.33%).
Conversely, the lowest probability of default is expected in health care and social assistance (3.1%), wholesale trade, and agriculture, forestry, and fishing.
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