While some are pointing to signs of stabilisation in the Australian business sector, the most recent data from digital credit reporting bureau CreditorWatch has given firmer shape to the challenges that remain in the space. According to the monthly CreditorWatch Business Risk Review, the number of businesses entering into administration rose for the first time since June, up 11% in September; further, the number of business defaults increased by 23% in September – the first increase recorded since May 2020.
The rebound in business default and administration figures suggests some of the 'zombie businesses' – those reliant on government support for survival – are acknowledging it's the end of the road.
"Seeing businesses enter into administration is never something you want to celebrate. However, September's increase in default and administration rates does indicate that some businesses which have been reliant on government support are starting to accept the reality of their situation and are taking steps to settle with their creditors," said Patrick Coghlan, CreditorWatch CEO.
"What we don't want to see is businesses that are doomed to fail continuing to operate and taking healthy companies down with them…the next six months are crucial in determining what position we start our economic recovery from," Coghlan added.
The CreditorWatch data for September also revealed significant variance between states: Victoria recorded a 23.8% increase in business administrations, following a 49.3% decrease in August, Queensland saw a 24.1% increase in administrations, following a drop of 25.4% in August and New South Wales recorded a 1.6% decrease in business administrations, following a 34.3% decrease the month before.
Average payment times – considered to be a key indicator of business cash flow – were down 10% across industries in September; however, despite the decrease in the number of days it took to pay bills, the figures remain up 222% year on year.
"For a signal of how Australian businesses are faring, payment times provide a glaring picture of how tough the environment is, especially when juxtaposed against 2019," said Harley Dale, CreditorWatch chief economist.
"Payment times still remain too high and some sectors are being particularly stubborn, such as the Financial Services and Insurance sector, which jumped up in September.
"As government support is rescinded, which way this metric tracks will be crucial in determining how well Australian firms fare in our new economic world."