CreditorWatch says more businesses are at risk of default as order volumes hit record low

Order volumes in January hit a record low, halving in three years, and that has raised the spectre of worsening insolvencies.

Poor sentiment from consumers facing the worst cost of living crisis in decades is putting businesses under pressure and the value of orders are tumbling to a record low.

CreditorWatch says that the situation is likely to worsen throughout 2024 because business and consumer confidence is subdued while input costs are elevated.

This is likely to result in insolvencies climbing in the coming months and businesses in Sydney’s southwest and in southeast Queensland are the most at risk.

The CreditorWatch Business Risk Index showed that the average value of invoices was down 19 per cent to just under $150,000 in January compared with the same period in 2023. Volumes have now halved from $300,000 in early 2021.

The Australian Bureau of Statistics reported in the past fortnight that retail turnover fell 2.7 per cent in December – the sharpest decline since the introduction of the GST in 2000 once the pandemic-era fall of 4.2 per cent in August 2020 is excluded.

CreditorWatch chief executive Patrick Coghlan said the deterioration in trading conditions indicated 2024 would be an extremely challenging year for Australian businesses.

“The retail trade numbers for December clearly showed that interest rate increases and high inflation are now exerting a huge amount of pressure on households, which translate to lower demand for goods and services,” he said.

“Our hope is that interest rate relief arrives sooner rather than later to ease cost-of-living pressures and stimulate demand.”

In a worrying sign for the economy, CreditorWatch noted that business to business trade payment defaults were at an elevated level for January, and are 55 per cent higher than January 2023. CreditorWatch noted that it meant businesses are becoming increasingly impatient with late payments, and are taking action by lodging payment defaults against these late payers.

It expected that the decision by the Federal government to make it harder for foreigners to study in Australia to add further pressure on retailers and hospitality outfits who have been the hardest hit by the cost of living crunch.

“Fewer international students will hurt the retail and food and beverage sectors, as these two sectors benefit greatly from population growth, not to mention the access to more labour,” CreditorWatch chief economist Anneke Thompson said.

“Both of these sectors are already grappling with falling demand and spend.”

CreditorWatch chief executive Patrick Coghlan.

Accommodation and food services recorded the fastest rate of insolvency of any sector in the December quarter, according to the Australian Securities and Investments Commission. It is up 92.4 per cent to 504 from the same period in 2022, while retail trade increased 40 per cent.

The regions with the highest levels of insolvencies tend to have very young populations, where discretionary spending among the population will have been hugely impacted by rising interest rates.

The top three were located in NSW where Merrylands-Guildford, Bringelly-Green Valley and Canterbury all have projected rates of insolvencies above 7.5 per cent.

Queensland was high on the index where Ormeau and Surfers Paradise were the fourth and fifth most at-risk suburbs with the risk of default at 7.4 per cent in the coming 12 months.