The March 2023 CreditorWatch Business Risk Index (BRI) has revealed, on multiple indicators, that business activity has returned to pre-COVID levels despite continued high inflation and interest rates. The question is how long will it remain there, given dire predictions for a global economic downturn like the IMF issued last week?

Key Business Risk Index insights for March:

• B2B trade receivables are up 45% YoY due, in part, to rising inflation but also a resumption of ‘normal’ trading activity post-COVID.
• External administrations rose 35% YoY, in line with the increase in trading activity.
• Court actions back to pre-COVID levels and up 22% YoY.
• Credit enquiries rose 28% from February to March were up a massive 149% year-on-year.
• B2B trade payment defaults are up 20% year-on-year following a seasonal dip in December and January.
• Six of the 10 highest ranking regions in Australia for probability of default are located in Western Sydney due to four key indicators: low median income, high population density and low positions on the ABS’s Index of Relative Social Advantage and Index of Economic Opportunity.
• Norwood-Payneham-St Peters in South Australia is the region with the lowest insolvency risk (across regions with more than 5,000 businesses), followed by Yarra Ranges in Victoria.
• Food and Beverage Services remains the industry at highest risk of default, due to its reliance on discretionary spending, which is in decline, as well as ongoing challenges such as labour shortages.
• External administrations in the construction industry continue to trend upward – sitting at a their highest point since July 2020.

Average trade receivables for March were sitting at $122,223, just eight per cent below the March 2020 figure. This upward trend can be attributed to high work volumes that businesses are working through and the impacts of inflation.

The increase in receivables was consistent with the Australian Bureau of Statistics’ (ABS) Monthly Business Turnover Indicator for February, which showed year-on-year increases in turnover across nine of 13 industries. Construction recorded the highest month-on-month increase in business turnover at 4.6%.

The Business Risk Index also revealed that external administrations continue to trend upward, in line with the increase in business activity, high inflation and creditors ramping up collection activity. They rose 35% year-on-year in March. Court actions also continue to increase – up 22% year-on-year and 1.5% above the March 2020 level.

Another indicator of the rising level of business activity, credit enquiries, rose 28% from February to March and is up a massive 149% year-on-year. B2B trade payment defaults are up 20% year-on-year following a seasonal dip in December and January.

Turning to regional analysis, the March data also shows that six of the 10 highest ranking regions in Australia for probability of default are located in Western Sydney. Our analysis shows that this is a function of four key indicators: low median income, high population density and low positions on the ABS’s Index of Relative Social Advantage and Index of Economic Opportunity. The fact that the biggest industries in these regions are construction and transport, postal and warehousing – both under considerable pressure – has also played a part.

CreditorWatch CEO, Patrick Coghlan, says the increase in business activity in March is testament to the resilience of the Australian business community.

“From a pandemic to labour shortages, supply chain disruptions, high inflation and rising interest rates, Australian businesses have had it all thrown at them,” he says. “To now be registering these increases in turnover is a very encouraging sign. However, we can’t ignore the forecasts for more tough times ahead as demand drops and cost pressures remain.

“However, these current increases in turnover mean that businesses will thankfully be in a stronger position as conditions tighten.”

CreditorWatch Chief Economist, Anneke Thompson, says the increase in trade receivables and monthly business activity can partly be explained by the still very high workloads that many industries are still dealing with.

“The construction industry, in particular, is still working through very high volumes of work and is invoicing at a very high rate,” she says. “It is the cost side that is really damaging to this sector at the moment, with many projects being completed at a substantial financial loss to the builder due to the price the owner pays being fixed at the time of contract signing.”