The May Business Risk Index from CreditorWatch reveals the worst could be over for Australian businesses, with key data hinting at a brighter outlook.

The data shows an easing in two key measures of business stress, insolvencies and B2B payment defaults.

Insolvencies are down 0.9% from April to May and have now dropped 12% from their November peak. B2B payment defaults dipped 11.8% in May and are down 18.3% from their peak in December.

Insolvencies and trade payment defaults have levelled out, albeit at quite elevated levels. This, says CreditorWatch, suggests some of the pressures on businesses from higher costs and constrained consumer spending may be beginning to be balanced out by the favourable impacts of last year’s income tax cuts, other cost-of-living support measures, the start of interest rate relief and a slower rate-of-cost increases.

Easing insolvency trends have been evident in the two previously most challenged sectors: accommodation and food services (hospitality) and construction – but manufacturing and wholesale trade have also stabilised or declined somewhat. These favourable trends have more than outweighed rising insolvencies being recorded in administration and support services; healthcare and social assistance; professional, scientific and technical services; retail trade; transportation, postal and warehousing; and rental, hiring and real estate.

Similarly, B2B invoice defaults appear to have stabilised in recent months, confirming the plateauing in insolvencies. Declines have been recorded in construction; food and beverage services; and retail.

Data ‘encouraging’ but challenges remain

CreditorWatch CEO Patrick Coghlan says the data on defaults and insolvencies is encouraging but some sectors remain under pressure.

“This levelling off of insolvencies has been long awaited and is very welcome but we need to remember that several industries still face significant challenges, particularly those exposed to discretionary spending,” he says.

“Post-Covid, we’ve seen inflation hit 30-year highs. Those rapid price increases across the economy don’t reverse when the inflation rate comes down again – the higher prices are locked in and remain as permanent pressures for businesses. They’re generally passed on to consumers, but this is very difficult for businesses in sectors such as hospitality. If the price of a sandwich at a cafe goes up by three or four dollars, people can very easily go elsewhere or bring their lunch from home.

“We won’t see conditions improve sustainably for businesses in discretionary sectors until consumers see their wages grow ahead of costs for some time.”

CreditorWatch Chief Economist Ivan Colhoun says the Fair Work Commission’s decision to increase the National Minimum Wage from 1 July 2025 will benefit consumers but apply further pressure on businesses, particularly in retail and hospitality.

“The good thing is that we will likely see these funds recycled into the economy. Interest rate relief by the RBA, as inflation has moderated, should also improve cash flow a little for both consumers and businesses alike,” he says.  

“One aspect we are watching as insolvencies pressures switch from construction and hospitality to other services sectors, is whether there is the possibility for greater impact on the broader macro-economy. A striking feature of the prior rise in insolvencies has been the degree to which small companies, particularly those employing less than five people and sole traders have been impacted.”