KEY INSIGHTS:
Some early signs of recovery but they’re dangerously fragile: Discretionary-exposed sectors like Hospitality, Construction and Arts & Recreation are finally stabilising – yet closure rates remain well above average, signalling a recovery that could unravel quickly. Business closures continue to rise in the Retail sector.
Hospitality still under severe stress: Despite easing closures, 10.6% of cafés, restaurants and takeaway outlets have shut in the past year, cementing Hospitality as the highest-risk sector for credit exposure, particularly among small operators with tight margins and thin cash buffers.
Insolvencies hit new cycle highs across key industries: October registered record insolvency highs in Construction, Retail, Transport and Professional Services, confirming that elevated interest rates and tightening cash flow are pulling more businesses into distress.
Trade payment defaults surging – the strongest insolvency signal: A 14% spike in payment defaults in one month and a 20% annual jump highlight a rapidly rising risk environment. Businesses with defaults face an 8–15% chance of insolvency within 12 months – a critical warning for credit teams.
Small business stress easing but still elevated: The Small Business Risk Index shows failure rates sitting 14.9% above the 10-year average, with Hospitality still the standout risk sector. Early signs of stabilisation are emerging, but conditions remain too volatile for complacency.
CreditorWatch’s October Business Risk Monitor reveals a turnaround in the prospects for industries exposed to consumer discretionary spending, with retail being the exception. Hospitality, Construction and Arts and Recreation Services are all seeing a moderation in business closures, indicating that interest rate relief is being felt by households and they are finally prepared to increase discretionary spending.
This is consistent with consumer spending, which increased 0.7% in October, and the Westpac Consumer Sentiment Index which jumped 12.8% from October to November – its first positive read since February 2022.
Business closure rate – Categories exposed to discretionary spending
Jan 2016 – Oct 2025
Data sources: CreditorWatch, ASIC
Despite the drop, closures in the Cafes, Restaurants and Takeaway Food Services category remain worryingly high, with 10.6% of businesses closing in the 12 months to November. Bars, pubs and clubs have fared better than good services outlets over the past two years, supported by poker machine revenue.
Pubs and clubs also tend to be larger businesses than cafes, restaurants and takeaway outlets, so are better able to weather economic downturns. However, all hospitality categories sit well above the national average for business closures (5.4%).
Business closure rate – Hospitality Categories
Jan 2016 – Oct 2025
Data sources: CreditorWatch, ASIC
Business closure rate – Arts & Recreation categories
Jan 2016 – Oct 2025
Within the retail category, the biggest drop in closure rates has been in fuel retailing (down 6.94% from September to October) with Department Stores and Hardware, Building and Garden Supplies seeing month-on-month increases of 7.94% and 2.70% respectively.
Business closure rate – Retail categories
Jan 2016 – Oct 2025
Data sources: CreditorWatch, ASIC
CreditorWatch CEO Patrick Coghlan says, “We’re finally seeing the early signs of a turning point for industries most exposed to discretionary spending, but the data makes one thing abundantly clear: this recovery is fragile.
“While consumers are beginning to open their wallets again, many businesses, particularly smaller operators in hospitality and retail, remain under intense pressure. The sharp rise in trade payment defaults and stubbornly high closure rates tell us that now is not the time for complacency. Businesses need to stay vigilant, understand their credit risk exposure, and use timely data to protect cash flow as the economy transitions into this next phase.”
NATIONAL INSOLVENCY TRENDS
After a few relatively low months, insolvencies rose sharply in October to a new high for the cycle. New highs were recorded in Construction; Retail Trade; Transport, Postal & Warehousing and Professional, Scientific & Technical Services, though interestingly, the Hospitality sector did not record new highs for the cycle, though insolvencies did rise notably.
Companies Entering Insolvency for the First Time – Seasonally Adjusted
January 1999 – October 2025
Data sources: CreditorWatch, ASIC
Across the first four months of the current financial year, there were significant rises in the number of insolvencies in Retail Trade (+13%), Transport, Postal & Warehousing (+35%) and Financial & Insurance Services (+31%). While the rises in both Transport and Finance are off low bases and are still a relatively small share of companies of companies in the sector, the trends have been emerging for a few months now and likely reflect the ongoing effect of still relatively high interest rates.
TRADE PAYMENT DEFAULTS JUMP 14%
CreditorWatch’s Trade Payment Default Index has been trending higher in recent months and recorded a sharp rise of 13.9% from September to October. The index is now up 20.1% year-on-year reflecting that businesses are experiencing increasing difficulty in paying invoices.
Trade payment defaults are a key red flag for potential insolvency. The risk of insolvency over the coming 12 months can be as high as 8-15% (for companies with one or more registered invoice default).
Trade Payment Index
January 2015 – October 2025 (January 2020 = 100)
Data source: CreditorWatch
ATO TAX DEBT DEFAULTS
the number of companies with tax debts over $100,000 has risen in two of the past three months. The rate of new inflows in July and September is still a little lower than the same months a year ago but remains elevated enough to conclude that the current trend is consistent with a broadly stable insolvency trend in coming months, rather than suggesting any significant improvement. This is a slightly more positive message than the recent signal from the trend in trade payment defaults.
ATO Tax Defaults – Inflow, Outflow and Total in Effect
As at 31 October 2025
Data sources: CreditorWatch, ATO
SMALL BUSINESS RISK INDEX
CreditorWatch’s Small Business Risk Index is a point-in-cycle indicator that portrays the extent to which business failure rates over the past year are above or below a long-run average. In this case, the long-run average that has been chosen is the 10-year average for the business failure rate. The failure rate is defined as insolvencies plus ASIC strike offs and voluntary business deregistrations.
The Small Business Risk Index indicates small business stress is beginning to ease, with the increase in the index beginning to slow. The index remains with the ‘safe’ band for business stress and associated risk.
Small business failure rates are currently 14.9% above the 10-year average and have increased 10.6% over the past 12 months. Failure rates are highest in the hospitality sector although, as previously mentioned, they have begun to ease somewhat. Failure rates are lowest in Agriculture, Forestry and Fishing and remain relatively low in Financial and Insurance Services and Healthcare and Social Assistance.
Small Business Risk Index
As at 31 October 2025
Data sources: CreditorWatch, ASIC intraday feed
ECONOMIC CONDITIONS TRACKER
CreditorWatch’s Economic Conditions Tracker, a predictive measure of the overall health of the economy, recorded a slight deterioration in October. This was the result of contradictory movements in its components: consumers reported that their family finances had improved compared to 12 months ago and businesses reported an improvement in profitability – both positive developments from an economic and credit perspective. However, these positives were slightly more than outweighed by a relatively sharp jump in the relatively volatile unemployment expectations component.
Economic Conditions Tracker
As at 31 October 2025
Data sources: CreditorWatch, NAB Survey, WBC Consumer Sentiment
OUR OUTLOOK
CreditorWatch Chief Economist Ivan Colhoun says, “Early this year, we suggested that insolvencies may level out as the benefits of the income tax cuts in mid-2024 flowed through the economy. That assessment has largely been correct.
“The RBA’s latest economic forecasts provide mixed news for both businesses and consumers. Because of the surprise jump in inflation revealed in Q3, there will be no further near-term interest rate reductions. At the same time, the RBA anticipates that the unemployment rate will broadly remain very low at 4.4% for the next two years as the economy expands at around 2-2.25% in real terms.
“Such a long period of stable unemployment is unprecedented in the past 50 years. Unemployment either trends lower or higher, meaning the likelihood is the RBA ends up being surprised in one direction. The rise in unemployment expectations suggests that could be to the upside.
“At the same time, and more positively, businesses continue to report better profitability in recent months. This seems to be evident in improving business conditions in WA, likely reflecting some benefits for the broader economy from the recent surge in precious metals prices.
“This leaves the economy at a very interesting crossroads and remains consistent with our assessment that, broadly, insolvency rates will remain relatively stable at elevated levels in the months ahead. The rate of insolvency might be a little below the recent peaks, notwithstanding the bounce back in October, due to the improvement in our Economic Conditions Tracker, but there remain important cost pressures below the surface and ongoing structural changes that suggest a significant decline in insolvencies is unlikely.”
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Michael joined CreditorWatch in July 2021. He has more than 20 years’ experience in business journalism, marketing and communications strategy and digital content development. He is passionate about communicating to the business community how CreditorWatch’s product suite can help them grow and protect their companies.
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