Business Outlook Brightens as Payment Defaults and Insolvencies Ease: A Welcome Sign for Australian Businesses

Australian businesses may finally be catching a break. According to CreditorWatch’s latest Business Risk Index (BRI) for May 2025, key indicators of business stress—insolvencies and B2B payment defaults—have both shown meaningful improvement. This signals that the worst of the pressure on Australian businesses could now be behind us.

​What’s Driving the Improvement?
CreditorWatch’s data shows a 0.9% drop in insolvencies from April to May and a 12% decrease from the peak in November 2024. Similarly, B2B payment defaults have fallen by 11.8% in May, down over 18% from their peak in December 2024.
This easing of pressure appears to be the result of several factors combining to support businesses:

• July 2024 tax cuts putting more cash in consumers’ pockets.
• Interest rate reductions finally beginning to bite, relieving some cashflow stress.
• Slower inflation meaning less pressure on operating costs.
• Ongoing government cost-of-living support measures.

Where Are the Improvements Most Noticeable?
The industries that were previously among the hardest hit—Accommodation & Food Services and Construction—are now showing signs of stabilisation. Other sectors like Manufacturing and Wholesale Trade are also trending in the right direction.
However, the story isn’t universally positive. Sectors including Healthcare, Professional Services, Retail, Transport, and Real Estate continue to see elevated insolvency rates.
Business Defaults: Signs of Stability
The drop in B2B payment defaults reflects this same stabilising trend. Key sectors showing improvement include:

• Construction
• Food & Beverage Services
• Retail

CreditorWatch CEO Patrick Coghlan cautions that while this trend is encouraging, some sectors—especially those relying on discretionary spending—remain under pressure. He notes that the impact of higher prices post-COVID is still being felt, especially in areas like hospitality, where customers have become far more price sensitive.
Minimum Wage Increases: Help or Hinderance?
Looking ahead, the Fair Work Commission’s minimum wage increase from July 2025 will help boost consumer spending power but will also add cost pressures for businesses, particularly those in Retail and Hospitality.
Chief Economist Ivan Colhoun believes that while this wage rise may pressure businesses, it could stimulate economic activity as the extra income circulates through the economy.
The Ongoing Risk Picture
Interestingly, CreditorWatch highlights Electricity, Gas, Water, and Waste Services as an unexpected area of rising arrears, driven in part by the challenges facing sub-sectors like Waste Management and Solar Installation. However, as interest rates continue to ease, the pressures on these industries may also reduce.
Regional Business Risk: Sydney’s West Still Struggling
The worst-performing regions remain in Western Sydney, where factors like high rents, rising personal insolvencies, and lower household incomes weigh heavily on business health. The Bringelly-Green Valley region is forecast to have a business closure rate of nearly 8% over the next 12 months—the highest nationally.
In contrast, inner-city Adelaide and parts of regional Victoria and North Queensland continue to demonstrate much stronger business resilience.
What’s Next for the Economy?
Colhoun suggests that further rate cuts are likely over the next 6–12 months as the Reserve Bank responds to both global and local challenges. However, uncertainties remain, particularly around US trade and tariff policies and domestic employment figures.
CreditorWatch’s broader economic outlook suggests cautious optimism. While some sectors are still struggling, the broader trend is stabilising, and many businesses are starting to see some relief from the extreme pressures of the past 18 months.
Key Takeaway
The combination of easing interest rates, stabilising insolvencies, and fewer payment defaults paints a more positive picture for Australian businesses moving into the second half of 2025. However, challenges persist in sectors tied to discretionary spending, and ongoing vigilance will be needed.