Insolvency rates remain elevated as uncertainty, cost pressures remain

Business failure rates remain elevated and business-to-business payment defaults have surged, CreditorWatch’s September Business Risk Monitor has found.

“Businesses and consumers continue to be impacted by many large forces occurring simultaneously, with significant uncertainty related to US trade and tariff policy, geopolitics and the rise of AI,” CreditorWatch chief economist Ivan Colhoun said.

“At the same time, higher costs – both of living and of doing business – present significant budgetary challenges, while it’s too early for the most recent interest rate reductions to be having much effect.”

CreditorWatch said its report reflected ongoing pressures in Australia’s business sector, with small businesses, construction companies and the road transport sector under particular strain.

In September, business failure rates remained 15.1 per cent higher than their 10-year average, with 1,101 businesses entering insolvency that month. The construction sector has continued to lead insolvency statistics, but CreditorWatch noted that road transport operators were facing new pressures amid high fuel costs and interest rates.

B2B payment defaults jumped 4.8 per cent from August to September, reaching their highest rate since December 2024. CreditorWatch warned that this was a “clear sign” that business finances were under sustained pressure, indicating that insolvencies are likely to remain elevated over the medium term.

The report indicated that insolvencies in the embattled construction and hospitality sectors had eased slightly, respectively falling by 4 per cent and 19 per cent from the prior year. However, industry reports suggested that this drop reflected tighter small business restructuring qualification criteria rather than improving business conditions, CreditorWatch said.

Across the broader economy, the report noted that economic conditions had improved again in September and now remained close to long-run averages. Interest rate reductions and income tax cuts had supported this improvement, but cost pressures remained a constraint on households and businesses.

The report also found that significant ATO tax debt was a predictor of insolvency. On average, 26 per cent of businesses with an ATO tax debt default greater than $100,000 went insolvent over the past 12 months, CreditorWatch found.

The number of new ATO tax defaults of over $100,000 had risen in recent months, the report added, and a trend of recent tax defaults suggested continual pressure on businesses.

“The outlook remains for insolvencies to remain at an elevated – but not very elevated or recessionary – level in the months ahead. Some further interest rate relief by the RBA would be helpful,” the report read.

“A more substantial improvement in the insolvency landscape and business conditions seems unlikely given that the cost of living and cost of doing business remain very elevated.”