The July 2023 CreditorWatch Business Risk Index (BRI) has shown something surprising. The average value of business invoices has gone down a lot, by 28% compared to the previous year.
This has caused waves across businesses in Australia. It’s like when you drop a stone into water, and it creates ripples – in this case, it’s affecting how much money businesses are making and making them more careful about how much they order.
This big drop in invoice values is causing a chain reaction. Businesses are being more careful with their orders because they’re making less money from their customers. This is like a domino effect – one thing leads to another, and it affects the whole supply chain, which is the process of getting things from the supplier to the customer.
The CreditorWatch BRI is not just about this drop in invoice values. It’s a report that gives a lot of information about how businesses are doing. It’s like a big picture. And this report doesn’t just talk about invoices. It’s also telling us that other important signs for businesses are getting worse. These signs include things like businesses not paying their bills on time, more businesses asking for credit, more companies going out of business, and more legal actions.
What’s also interesting is that the BRI report shows that some places are doing better than others. Ballarat is one of those places. Along with Yarra Ranges, it’s one of the top five areas in Australia where businesses are less likely to fail. This tells us that different parts of Australia have different economic situations – some are doing well while others are struggling.
Delving deeper into July’s BRI findings, key insights include a range of trends:
- The staggering 28% YoY plunge in average invoice values.
- A notable 86% YoY surge in B2B trade payment defaults.
- A resilient 66% YoY increase in credit enquiries, indicative of stringent due diligence.
- A 10% YoY surge in external administrations, affecting various sectors.
- A robust 17% YoY rise in court actions.
- The projection of a national default rate hike from 4.67% to 5.76% over the coming year.
Industries with higher vulnerability to payment defaults are highlighted, with food and beverage services (6.9%) and transport, postal, and warehousing (4.4%) topping the list. These sectors grapple with unique challenges stemming from shifts in consumer spending patterns and operational complexities.
In response to these trends, Patrick Coghlan, CEO of CreditorWatch, expressed apprehension about the substantial impact of the dwindling invoice values on the broader Australian economy. The persistent and severe nature of this decline underscores the wide-ranging implications. “Over the past year, the decline in the value of invoices has been consistent and severe, he says. “This deterioration is reflected in our other key business indicators: payment defaults, external administrations, credit enquiries and court actions.
“It will be the industries most exposed to consumer discretionary spending, such as hospitality and retail, that will experience the toughest conditions across the second half of this year.
The insights from the report are in alignment with the Reserve Bank of Australia’s (RBA) predictions of an imminent economic slowdown. Anneke Thompson, Chief Economist at CreditorWatch, emphasizes these connections, shedding light on how these trends could potentially impact various aspects, including consumer behavior and household spending patterns.
In a remarkable turn, regional powerhouses Ballarat and Yarra Ranges have surpassed expectations by maintaining remarkably low probabilities of business failure. This commendable feat can be attributed to a strong foundation of well-established businesses, a magnetic appeal for tourism, and a commitment to quality education. These regions serve as living examples of resilience in the face of challenging economic circumstances.
Looking into the future, industries with higher probabilities of default in the upcoming year include food and beverage services (6.95%), transport, postal, and warehousing (4.43%), and arts and recreation services (4.42%). In contrast, sectors such as health care, wholesale trade, and manufacturing exhibit lower probabilities of facing default.
Subtle shifts in consumer spending behaviors are visibly unfolding within cafes and restaurants, manifesting as a marginal decline in purchasing volumes. This subtle recalibration hints at the evolving challenges that businesses within these sectors face on the demand side of the equation.
At the precipice of insolvency rates, industries such as food and beverage and construction continue to hold prominent positions. Notably, the mining sector’s escalation in insolvency rates can be attributed to its susceptibility to the impacts of external factors, such as commodity price fluctuations and regulatory changes.
As Australian businesses navigate this ever-evolving landscape, characterized by the upward trajectory of interest rates, an elevated risk landscape, and evolving consumer preferences, the significance of adaptability and strategic foresight cannot be overstated.
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