Insolvencies Set to Jump - CreditorWatch
(14 July 2022 – Australia) As defaults creep closer to pre-pandemic levels, CreditorWatch data forecasts weaker business confidence will lead to higher insolvencies in the second half of 2022.
CreditorWatch reports that business conditions are beginning to turn which generally contributes to greater business insolvencies. Trade payment defaults are up 18 per cent year-on-year (YOY) while court actions are at their highest rate since March 2020. This has been attributed to a return to regular collections activity by lenders’ post-pandemic-induced “loan holidays”. The national default rate is currently flat at 5.8 percent however CreditorWatch projects this rate to increase given the deteriorating economic outlook.
The number of enterprises unable to repay their debts is expected to ratchet higher by over one-third over the next 12 months while flood affected areas could see insolvency rates surge by 36 percent.
“We continue to see a disturbing rise in trade payment defaults, our leading indicator for future business insolvencies” commented CreditorWatch CEO Patrick Coghlan.
“While Australian businesses have been previously operating at record capacity levels and business conditions are still tracking better than the long-term average, it’s not set to last. Businesses will be increasingly wary of their credit customers and their ability to pay going forward, even if no problems have arisen to this point. Businesses in the growth phase, who require equity or debt for growth, may now see these lines of funding get increasingly more difficult to source” stated CreditorWatch Chief Economist, Anneke Thompson.
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