Invoice defaults climb to record highs: CreditorWatch
Payment defaults from business-to-business transactions are at record highs despite a slight improvement in conditions, recent data shows.
Increasing cost pressures on Australian businesses has driven a 47.9 per cent year-on-year increase in B2B trade payment defaults, according to the latest CreditorWatch Business Risk Index.
External administrations are also now sitting consistently above pre-COVID levels and are up 24.6 per cent year on year.
While the February index data recorded a seasonal increase in the average value of invoices from January to February (up 10.4 per cent) values continue to trend downward and sit at their lowest point since September, according to the credit agency.
CreditorWatch chief executive Patrick Coghlan said the rise in B2B payment defaults and falling invoice values are a concerning combination.
“This indicates that cash reserves are being depleted and margins are being squeezed. An increasing number of businesses have less cash coming in, which means they are then finding it more difficult to pay their own suppliers and as such we are seeing a steep increase in payment defaults being registered on the CreditorWatch database,” said Mr Coghlan.
“They are also cutting the size of their orders and running down inventories.”
CreditorWatch said there is a strong correlation between payment defaults and business failures.
“Businesses with one default have a 24 per cent chance of going insolvent in the next 12 months. This rises to 42 per cent for two defaults against two businesses and 62 per cent for three defaults against three businesses,” it said.
CreditorWatch is expecting the rate of external administrations will continue to increase over 2024 based on the rate of trade payment defaults recorded in February.
The latest NAB business survey indicated that businesses remain resilient, however, with business conditions improving three points to 10 index points.
Trading conditions and profitability both rose 4 points, while the employment index was broadly steady, according to the survey for February 2024.
More to come.
