SYDNEY, Thursday 16 February 2023 – The January 2023 CreditorWatch Business Risk Index (BRI) reveals that business conditions are turning for Australian businesses, with a number of key metrics continuing to decline after a subdued end to 2022 as the RBA continued to tighten the screws on interest rates.

CreditorWatch’s key trade indicator, trade receivables (the average value of invoices), experienced a seasonal drop in January, down 39% from December, but have also been trending downward since July 2022. In fact, they are at their lowest point since CreditorWatch began collecting this data in January 2015.

B2B trade payment defaults were down eight per cent from December to January but are still up 39% year-on-year and showed a clear upward trend before the seasonal decline in November last year (see chart below).

In terms of probability of default by industry, food and beverage services (hospitality) is ranked number one by a considerable margin due to the multiple challenges it currently faces: from labour shortages to price hikes to lower consumer demand.

Credit enquiries were up a massive 129% year-on-year in January, following an uptick that began in October – a likely consequence of the Optus and Medibank data breaches.

External administrations were trending upwards until their seasonal drop in January, however we expect the February Business Risk Index results to show a continuation of the upward trend.

Key Business Risk Index insights for January:

• B2B trade receivables are at their lowest point since CreditorWatch began collecting this data in January 2015.
• Trade payment defaults are up 39% year-on-year.
• Credit enquiries are up 129% year-on-year.
• External administrations are expected to continue trending upward this year.
• Court actions are at their highest point since September and are up 36% on January 2022.
• Yarra Ranges in Victoria is the region with the lowest insolvency risk (across regions with more than 5,000 businesses), followed by Cottesloe-Claremont in Western Australia.
• Gold Coast Hinterland in Queensland and Melton-Bacchus Marsh in Victoria are the regions at highest risk of default across Australia (for regions with more than 5,000 businesses). The Western Sydney regions of Merrylands–Guildford and Canterbury have improved but still hold positions nine and 10 respectively on the list of worst performing regions.

CreditorWatch CEO Patrick Coghlan says that the January Business Risk Index results clearly indicate a tough year ahead for Australian businesses.

“The upward trend in trade payment defaults, in particular, should definitely be of concern to business owners,” he says.

“The RBA’s tightening of monetary policy is beginning to bite, on top of other challenges like labour shortages and supply chain disruptions. We will hopefully see inflation peaking soon, followed by an improvement in business and consumer confidence. It is important to remember that the Australian economy is still in a much better position than most.”

CreditorWatch Chief Economist, Anneke Thompson, says trade receivables and trade default data provide a strong indication that we are now well past the peak of business conditions.

“This is in line with NAB’s latest Business Conditions survey, which also shows business conditions and confidence falling,” she says. “While 2023 will certainly be a tougher trading environment for businesses than 2022, we are coming off a period where many businesses were operating at or close to capacity, and the RBA is looking for a slowdown in activity to cool inflation.

“One of the likely results of this slowing of business activity is rising unemployment. Again, employment conditions have been extremely tight, so any rise in the unemployment rate will likely still see the rate at very low levels in overall terms. It will also dampen wage growth, something the RBA Is very keen to keep at moderate levels so as not to induce a wage-price spiral.