The past year has witnessed a staggering 18% increase in court actions, with a simultaneous 10% spike in the last quarter alone.
This surge unveils a heightened legal battleground, showcasing the ripple effects of financial disputes, contractual breaches, and legal ramifications stemming from the ongoing economic downturn.
Adding to the complexity, the average value of invoices for businesses across the nation has plummeted by a concerning 34%. This sharp decline not only reflects financial strain but also raises concerns about the overall health of businesses, especially for SMEs grappling with reduced cash flow. Furthermore, a distressing 57% surge in B2B trade payment defaults since January adds to the financial strain, portraying heightened vulnerability across sectors.
Simultaneously, external administrations have persistently risen by 26% year-on-year, indicating potential insolvency issues and a strain on resources across various sectors. This trend poses multifaceted challenges for businesses, suggesting a critical need for proactive measures to weather the economic storm. Zooming into specific industries, the food and beverage services sector emerges as the most vulnerable, facing a substantial 6.70% risk of payment defaults. Transport, Postal, and Warehousing follow closely with a 4.47% risk, emphasizing the financial tightrope these industries navigate.
The latest CreditorWatch Business Risk Index (BRI) for November 2023 sheds light on industries grappling with soaring rates of external administrations over the past year, providing insights into the broader economic landscape.
Public Administration and Safety, Healthcare, and Social Assistance: Industries reliant on government involvement experienced a surprising twist, with private businesses witnessing a doubling of external administration rates in the private security sector. Healthcare and Social Assistance saw a 71% increase, attributed to the failure of small private businesses holding National Disability Insurance Scheme (NDIS) contracts.
Construction Industry: The construction industry ranked third in the surge, experiencing a 59% increase in external administrations, driven by persistent challenges with project delays, cost overruns, labor shortages, and supply chain disruptions.
Positive Trends Amid Challenges: Arts and Recreation Services emerged as the sole industry witnessing a decline (-23%) in external administrations, credited to the normalization of activities in the entertainment sector post-COVID. However, concerns linger about the sustainability of this trend.
Key Insights from the Business Risk Index (BRI) – November:
Average Invoice Values Plummet: Over the past 12 months, the average value of invoices for Australian businesses has seen a sharp decline of 34%.
Rising B2B Payment Defaults: B2B trade payment defaults have shown a continuous upward trend, increasing by 57% since January.
Continued Surge in External Administrations: External administrations have risen by 26% year-on-year, underscoring the economic challenges faced by businesses.
Declining Credit Enquiries: As business activity and credit/loan applications decline, credit enquiries are on a downward trend.
Increase in Court Actions: The last quarter witnessed a 10% increase in court actions, with an 18% rise year-on-year.
Predictions and Regional Variances
CreditorWatch’s national business failure rate prediction for the next 12 months anticipates a rise from the current 4.18% to 5.80%. Industries most at risk of payment defaults include Food and Beverage Services (6.70%), followed by Transport, Postal and Warehousing (4.47%), and Financial and Insurance Services (4.33%). Regionally, Ballarat in Victoria stands out as the area with the lowest risk of business failure, while Merrylands-Guildford in NSW tops the list of highest-risk regions.
CreditorWatch Chief Economist, Anneke Thompson, attributes the sharp decline in average invoice values to the substantial drop in business activity, particularly among small businesses. Thompson suggests that migration patterns might have masked consumer spending slowdowns, and the government’s decision to control migration could impact the retail sector. While the potential cash rate cut in 2024 offers a glimmer of hope, caution prevails among consumers and businesses across most industries, setting the tone for subdued business activity in the coming year.