1 in 8 cafes, restaurants hang ‘out of business’ sign on doors

CreditorWatch has released its July Business Risk Index, which revealed that the industry is bearing the brunt of record arrears and rising payment defaults.

One in eight cafes and restaurants closed in the last 12 months to July 2026, and the closure rate reached 12.03 per cent. This was almost double the national average of 6.69 per cent across all industries.

This means that out of every 100 cafes and restaurants trading a year ago, 12 are no longer operating.

CreditorWatch chief executive Patrick Coghlan said the closure rate reflects the pressure the sector has already absorbed.

“But the trade payment default rate is the number worth watching, because it points to what's still ahead. When a sector is defaulting on its suppliers at close to four times the national rate, it suggests a pipeline of stress that hasn't fully worked through.

“Defaults are among the earliest and most reliable signals we have that a business is heading for difficulty. Many of these are well-run operators being squeezed on costs rather than performance, and the data suggests the hospitality adjustment has further to run."

Indeed, trade payment default levels – which indicate which businesses are most at risk of failing – were at 1.15 per cent in July, close to four times the national average of 0.31 per cent.

“Even a single default materially raises a business's likelihood of failure over the following 12 months. A sector defaulting at around four times the national rate is not only under pressure today but likely carrying a further pipeline of failures into FY27,” the report read.

For suppliers, a missed payment could weaken the creditor’s cash flow and prompt tighter credit limits, shorter payment terms, or more active collections across its customer base.

As such, CreditorWatch urged businesses to monitor changes in customer payment behaviour rather than relying only on formal insolvency events or historical credit information.

Hospitality arrears highest of any sub-industry

In July 2026, 10.21 per cent of cafes, restaurants and takeaway businesses were 60 or more days in arrears on their payments, nearly double the national average of 5.36 per cent and the highest arrears rate of any sub-industry in the country.

According to CreditorWatch, this points to a link between arrears and closures, and shows that many hospitality businesses were already falling behind on payments well before they closed.

“Arrears at this level are typically more than a short-term cash flow issue,” the credit reporting agency said.

“They're a reliable early indicator that a business is under genuine financial strain. The closure figures largely reflect an arrears problem that was evident months earlier.”

How can accountants help their hospitality clients?

To combat increasing trade payment defaults and arrears, specialist advisory firm McGrathNicol partner Jason Ireland recommended specific cash management strategies for both small and large businesses.

This includes maintaining a detailed cash flow forecast covering a 13-week period to identify specific “pinch points” such as weeks with high wage outflows and low revenue.

“If you saw that laid out in a cash flow forecast, you might do something different around trying to stimulate revenue in that week to cover that particular problematic week,” Ireland tsaid.

“This forecast lets the accountant talk with the business owner about whether or not it's actually a loss-making, cash-negative business. If they're not paying your creditors as quickly as they used to and are defaulting, you need to help them get to the core of the issue, which is they don't have enough cash to do that.”

The accountant’s role, he continued, is to use these models to help clients transition from “hand-to-mouth” operations to holistic financial oversight. If business closure is inevitable, accountants could carefully communicate closure plans and manage remaining obligations to creditors.

The directors of larger entities or corporations must adhere to responsibilities under the Corporations Act, specifically regarding not trading while insolvent, he said.

“Clients need to get advice. I think accountants should encourage them to speak to a restructuring expert like a lawyer or a restructuring insolvency practitioner. If you don't address it, it can be a serious issue. So, landing that plane requires some expert help.”

Consumer cost cutting eats into business

The hospitality industry is under sustained financial pressure because cafes and restaurants operate on one of the tightest margins in the economy with little buffer. When energy, rent, food and beverage, and wage costs rise together, there is limited room to absorb the impact, according to CreditorWatch.

Moreover, as Australians face rising mortgage repayments and cost-of-living pressures, discretionary spending like eating at restaurants or buying coffee is typically the first to be slashed.

“It's a clear illustration of a sector caught between rising costs it has limited ability to control and households that are dining out less,” the report said.

Economy-wide insolvencies dropped 11.6 per cent from June to July, partly reversing the broader rising trend in business failures.

“The insolvency cycle continues to reflect the cumulative impact of a prolonged squeeze on business cash flow. Higher operating, financing and labour costs have absorbed working-capital buffers, while uneven demand has constrained the ability of many businesses to rebuild margins,” the report read.