CreditorWatch’s says failures in the hospitality sector to soar another 1.5pc in the 2025 financial year

Creditor reporting bureau CreditorWatch forecast that one in 11 hospitality businesses will collapse in the next 12 months.

CreditorWatch has identified a correlation between a business-to-business payment defaults and the likelihood of a business failing.

Failures in the hospitality sector are expected to rise to more than 9 per cent over the next year as the value of business orders falls to a record low.

CreditorWatch’s June results for its Business Risk Index revealed a dramatic 49.9 per cent drop, year on year, in the value of invoices held by Australian businesses in the past 12 months, as consumers tighten their belts to cover increases in mortgage payments, rents and power bills.

With the hospitality sector’s heavy reliance on discretionary spending, the credit reporting bureau has increased its 12-month forecast for failures from 7.5 per cent to 9.1 per cent – or one in every 11 businesses.

Compounding this problem is rising invoice payment defaults, which have been trending up since mid-2021, indicating that businesses are finding it increasingly difficult to pay their ­suppliers despite lower order ­values.

CreditorWatch has also identified a strong correlation between a business-to-business payment default and the chance of a business failing in the following months, while another key metric, the business failure rate, is also deteriorating with an 8.8 per cent increase across all industries over the past 12 months.

CreditorWatch chief executive Patrick Coghlan.

CreditorWatch chief executive Patrick Coghlan said conditions were becoming dire for Australian small businesses.

“The combination of declining order values and increasing payment defaults is a major concern as it indicates more businesses are experiencing both cost and demand pressures,” he said.

“With another rate increase becoming increasingly likely, we expect both metrics to deteriorate even further. It is small businesses that are hurting the most as they are more vulnerable to adverse economic conditions than larger businesses.

“They operate on tighter margins and are less able to take measures to cut costs.”

Other sectors under pressure include arts and recreation services, and transport, postal and warehousing, with forecast failure rates of 5.7 per cent and 5.5 per cent respectively.

The average business failure forecast for all industries is 5.1 per cent.

CreditorWatch's BRI report says court actions are trending strongly upwards, with a 37 per cent increase for the year to June 2024, well above pre-Covid ­levels.

Food and beverage services is the top-ranked industry for outstanding ATO tax debts above $100,000, with a rate of 1.65 per cent, followed by construction and electricity, and gas, water and waste services at 1.18 per cent and 0.94 per cent, respectively.

Overall credit inquiries dropped from May to June and remain flat over 2024, reflecting the subdued trading conditions in the Australian economy.

CreditorWatch chief economist Anneke Thompson said Australia was in the “toughest phase” of the monetary policy cycle.

“The high cost of debt is compounding the problems (caused) by inflation, that is still too high in some areas,” she said.

“Monetary policy decisions usually lag what is happening in the broader economy, as data takes time to filter through to the RBA, and the RBA also wants to see a few months’ worth of data to be more certain that their decisions taken at board meetings are the correct ones.

“While this approach is sound theoretically, in practice it means businesses have to endure high interest rates long after consumer demand has plummeted, and discretionary spending has significantly weakened.”

Originally published as CreditorWatch’s says failures in the hospitality sector to soar another 1.5pc in the 2025 financial year