Insolvencies plateau but tariff risks loom, CreditorWatch warns

CreditorWatch’s April Business Risk Index showed that insolvencies in the hardest-hit sectors, construction and hospitality, have shown signs of plateauing at high levels.

“We hear so much about the cost-of-living crisis, but it’s a ‘cost of doing business crisis’ as well, with businesses having seen significant increases in their cost bases,” Ivan Colhoun, chief economist at CreditorWatch, said.

“Businesses exposed to discretionary spending experience the worst of both worlds, with their costs pressured and their customers’ demand weakened. Hopefully the recent interest rate cuts by the RBA can build on the beneficial effects of last year’s income tax cuts and cost-of living support.”

While inflation has returned to the RBA’s 2–3 per cent target bands, Australian businesses and consumers are still being squeezed by high operating and living costs. This has created a tough environment for consumer-facing industries such as hospitality, CreditorWatch said.

“When households feel the pinch from interest rate rises and price increases, they typically spend less at places like cafes, restaurants, bars and pubs,” Patrick Coghlan, chief executive of CreditorWatch, said.

“On top of that you have the business cost increases in areas such as wages, electricity, insurance and food and alcohol.”

“You also have to remember that most hospitality outlets are small businesses, so they usually don’t have the cash buffers to get them through hard times that large businesses often do.”

NAB’s Small Business Pulse Survey found that cash flow was the top issue worrying small business owners in 2025, indicating that cost pressures remained high for businesses despite inflation's return to target.

Over the 12 months to April 2025, one in 10 (9.6 per cent) hospitality businesses closed, while 5.7 per cent of construction businesses went under, CreditorWatch data showed.

In the accounting space, approximately one in 20 (4.7 per cent) professional, scientific and technical services closed, a milder result than most other industries.

Cost pressures have prompted many accounting firms to raise their fees across 2025 in a bid to stay operational, a survey by revenue and billing automation platform Ignition found.

A majority (80 per cent) of accounting firms planned to raise fees across all services in 2025. Over half (64 per cent) of them cited “covering rising business costs” as their main reason for their decision to increase prices.

Two interest rate cuts with the prospect of further cash rate reductions in coming months and a tamer inflation environment were positive signs for Australian businesses, CreditorWatch said.

However, an uncertain tariff environment could pose unexpected risks to businesses and economic growth, which could continue to weigh on businesses throughout the coming years.

Business turnaround and restructuring firm Vantage Performance said that the high ratio of insolvencies to registered companies could be a warning sign of economic strife ahead.

“The story is hidden in the data, and I would advise all business owners to take note of the slow but significant changes in insolvency and unemployment figures to properly insulate themselves against financial hardship,” Michael Fingland, chief executive and founder of Vantage Performance, said.

Since 2020, the proportion of registered companies that had become insolvent quadrupled from 0.01 to 0.04, CreditorWatch data showed.

The pick-up in insolvencies has likely been driven by the ATO’s return to regular tax collection activities following a more lenient approach to the pandemic. Regardless, with looming threats to trade uncertainty, Fingland encouraged businesses to conduct stress tests to ensure they could weather economic strife.

“Unless we see significant movement in trade globally, a recession becomes more of an inevitability. The only questions are when and how Australian businesses will protect themselves from becoming another statistic.”