Shortly after the first round of JobKeeper cuts and most significant Federal Budget since World War II, new data from leading digital credit reporting bureau CreditorWatch reveals signs of stabilisation in the Australian business sector.
According to the monthly CreditorWatch Business Risk Review, the number of businesses entering into administration rose for the first time since June, up 11% in September; while the number of business defaults increased by 23% in September – the first increase recorded since May 2020.
The slight rebound in business default and administration figures suggests that some ‘zombie’ businesses – those reliant on government support for survival – are waking up to the reality of their situation and shutting up shop.
However, there was significant variance between states, with Victoria recording a 23.8% increase in business administrations, compared to a 24.1% rise in Queensland and 1.6% decrease in New South Wales, according to CreditorWatch Business Risk Review data for September 2020:
Credit enquiries on the CreditorWatch platform, a live indicator of business activity, dropped 6% in September after four months of positive increases. However, enquiries were higher on average over the past four months compared to the previous eight months.
CreditorWatch CEO, Patrick Coghlan said September’s increase in default and administration rates indicates that some businesses which have been reliant on government support are starting to accept the reality of their situation and taking steps to settle with their creditors.
“What we don’t want to see is businesses that are doomed to fail continuing to operate and taking healthy companies down with them. The long term-trend is that zombie companies will continue to survive on government support and so the next six months are crucial in determining what position we start our economic recovery from,” he said.
Considered to be a key indicator of business cash flow, average payment times were down 10% across industries in September, with 11 of 19 industry groups recording a decrease in the number of days it took to pay bills. For the retail industry, payment times are up 172.7% year-on-year but were down by six days in September compared to August.