Thousands of Australian SMEs face survival test as rising costs and ATO collections accelerate insolvencies: ScotPac report

A quarter of Australian SMEs have conceded they could be tipped into insolvency risk if they suddenly lost just one key client or supplier.

The alarming finding is contained in the latest edition of ScotPac’s bi-annual SME Growth Index Report, Australia’s most established pulse check of SME confidence and growth prospects.

It comes off the back of a year of surging business insolvencies driven by two main factors – escalating cost pressures and more assertive collection activities by the Australian Tax Office (ATO). 

Insolvency Numbers Tell a Worrying Story 

Recent data from Insolvency Australia’s Corporate Insolvency Index paints a stark picture for the most recent financial year:

• 11,000 businesses went insolvent nationwide in 2024, a 39% jump from the previous year.
• Court-ordered liquidations doubled, showing a 99% increase.
• Director Penalty Notices rose by 50%.

The ATO, which is pursuing around $35 billion in unpaid SME debt, issued almost 27,000 Director Penalty Notices in FY2024 for $4.4 billion in outstanding payments. 

How Losing Major Business Partners Affects Companies 

In addition to SMEs that said they would face the prospect of insolvency, the SME Growth Index Report found the following varying levels of business vulnerability in the event of losing a key business partner:

• Half of all SMEs said they would suffer severe cash flow problems or face negative financial impacts lasting three months or more.
• 4% of SMEs declared they would need to shut down immediately.
• Only 21% felt secure enough in their business diversity to weather such a loss without financial damage.

Professional Support Drives SME Recovery

ScotPac CEO Jon Sutton emphasised that while the current economic indicators raise concerns, businesses that seek professional guidance when dealing with cost escalations and ATO debt will be best placed to recover.

“In the current high-cost environment, SMEs are understandably nervous about disruptions to their cash flow and supply chains, particularly those operating on thin margins,” Sutton said.

“The good news is that unprecedented support and guidance is available to SMEs, starting with their brokers and key advisors.

“SMEs that sit down regularly with their brokers and make a plan for unforeseen events like the loss of a key client or supplier will be well-prepared to survive cash flow fluctuations.

“Even for businesses placed into administration, the benefits of sourcing professional help are now clearly documented.”

Small business restructuring has emerged as a vital survival tool in recent years, enabling companies with liabilities under $1 million to maintain control of their business while collaborating with restructuring practitioners on creditor-approved turnaround plans.  According to ASIC data, of 573 companies that formally entered restructuring after January 2021 and completed their plans by July 2024, an impressive 89% remain registered.

Sutton said ScotPac has more than 35 years of expertise in helping businesses optimise their cash flow and manage ATO debt obligations.

“ScotPac’s leading Invoice Finance and Boost Business Loan are two solutions that can provide SMEs with rapid cash injections to help manage both anticipated and unexpected events,” Sutton said.