Tough start to 2025 ahead for Australian businesses: CreditorWatch

Credit reporting bureau, CreditorWatch, has released the November results for its Business Risk Index (BRI) with all key metrics pointing to an extremely challenging start to 2025 for Australian businesses, particularly small businesses.

Insolvencies, the business failure rate, B2B payment defaults and court actions are all on the rise as businesses battle a combination of cost increases, high interest rates, wage increases, skilled labour shortages, increased ATO enforcement activity and soft consumer demand.

CreditorWatch’s forecast is for insolvencies and the business failure rate to continue to increase in the first half of 2025.

CreditorWatch’s BRI data for November shows:

• Insolvencies are at record highs in number and are up 57% for the year to November.
• The average business failure and closure rate for all sectors, is currently at 5.1%, the highest rate since August 2020. The failure rate is expected to be 5.6% over the next 12 months.
• B2B payment defaults – a leading indicator of potential insolvency – are also at record highs and have more than doubled in the past year.
• Court actions remain elevated as the ATO maintains its ramped-up debt recovery efforts.

CreditorWatch Chief Economist Ivan Colhoun noted, the 2025 outlook is likely to remain challenging until the RBA delivers some interest rate relief. This was previously not expected before May 2025, but the December RBA Board Meeting has opened the door to an easing in February provided the Board gains greater confidence in its inflation forecasts from the Q1 CPI at the end of January and other data releases.

An expected easing cycle over 2025 will be helpful for households and businesses but is only expected to be moderate in size, without a more significant slowing in the labour market, which is not currently signalled.

“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,” Colhoun said.

“These fundamentals are reflected in rising B2B payment default rates and, along with increased ATO enforcement activity, will continue to lead to increased insolvencies. Lower commodity prices, changes to government policy on foreign students and immigration are also likely to lead to less favourable conditions in the Mining and Education sectors and to slower population and demand growth in general.

“President Trump’s proposed significant tariff increases add another considerable layer of uncertainty to the overall business outlook globally and in Australia, especially for the Manufacturing, Wholesale and Retail Trade and Transport and Warehousing sectors.”

Business Failure Rate

CreditorWatch defines a business failure as voluntary and involuntary administrations, voluntary business deregistrations (closures) and ASIC strikeoffs. There are clear rising trends for both involuntary administrations and ASIC strikeoffs, with the involuntary administration rate for private companies now considerably above pre-COVID levels.

As with other metrics, the business failure rate (the chance of a business being wound up or closing voluntarily) is particularly high in the Food and Beverage sector.

Late Payments

Unsurprisingly late payments and arrears are trending higher and have risen relatively sharply in recent months. This likely reflects the cumulative effects of higher costs of doing business and cost of living and the lagged effect of monetary policy, which always has its peak impact on the economy some 12 to 18 months later. Reflecting this, Average Days Past Due – the time businesses wait until their debtors pay invoices has lengthened over the past year. Food and Beverage Services and Construction occupy two of the top three positions for payment arrears.

B2B Payment defaults

B2B or trade payment defaults continued to rise in November, albeit less markedly than in recent months. Elevated trade payment defaults are an important lead indicator of business failures and insolvency, especially where multiple payment defaults are lodged against a single business.

Trade payment defaults remain especially elevated in the Construction and Food and Beverage Services sectors but have risen across most industry sectors in recent months, suggesting increased pressure on businesses.

CreditorWatch CEO, Patrick Coghlan, says this Christmas will be another challenging one for Australian businesses, particularly those in consumer facing sectors.

“Our data, on multiple levels, shows businesses are under increasing stress,” Coghlan said. “Despite these headwinds, Australian businesses remain resilient.

“We expect those exposed to discretionary spending such as Hospitality, Retail and Arts and Recreation will continue to find it particularly difficult, at least until consumers receive interest rate relief and increase spending again.

“The incidence of bad debts is going to increase in line with this, which makes it critically important for business operators to monitor the payment behaviour of their customers and change payment terms where necessary.”