Cash flow pressures continue to impact Aussie businesses

The near-term outlook remains heavily influenced by developments in the Middle East, oil prices, and inflationary pressures, with input costs rising sharply due to fuel and broader energy impacts.

CreditorWatch chief economist Ivan Colhoun notes that Australian economic data to date shows only a slight deterioration in business conditions, but much bigger impacts on confidence and input costs.

"The surge in input costs and retail prices adds to prior cost of living and cost of doing business pressures and can be expected to lead to weaker business conditions in the coming months unless the Strait of Hormuz reopens relatively soon,” Colhoun said.

The longer the Strait of Hormuz remains closed, the greater the risk of a renewed very sharp spike in energy prices and interruptions to energy supplies, as emergency global stocks cannot be run down indefinitely.

Higher interest rates are tightening credit and debt-servicing capacity

The RBA increased the cash rate target by 25 basis points to 4.35 per cent, assessing that inflation is likely to remain above target for some time. It noted that higher fuel prices and this year's interest rate increases are expected to lower spending by Australian households and businesses.

That combination matters for business risk, as higher rates lift debt-servicing costs across the economy.

CreditorWatch's ATO default data for April depicts that a rising number of businesses are falling behind on their tax payments. Three of the four largest new inflows since the post-COVID-19 increase in enforcement have occurred in the past four months. There is a considerably higher risk of insolvency over the next 12 months for companies with large ATO debts.

Weak consumer demand is limiting the ability to pass costs on

Softer demand makes it harder to pass on costs. The result is a more fragile cash-flow environment, especially for smaller operators and sectors with tight margins.

Data indicate that the pressure is uneven, with the rolling annual insolvency rates varying notably across industries, particularly in sectors exposed to discretionary spending, labour costs, fuel, materials, subcontractor risk, and supply-chain disruption.

1. Food and beverage services (2.24 per cent)
2. Administrative and support services (1.25 per cent)
3. Transport, postal and warehousing (1.24 per cent)
4. Construction (1.18 per cent)
5. Manufacturing (1.13 per cent)

In terms of the late-payment picture, the sector split is reinforced further in terms of the rates of overdue invoices.

1. Food and beverage services (60 days overdue at 11.37 per cent)
2. Electricity, gas, water and waste services (8.16 per cent)
3. Rental, hiring and real estate services (7.51 per cent)
4. Construction (7.51 per cent)
5. Transport, postal and warehousing (7.09 per cent)
6. Retail trade (6.59 per cent)

With late payments, tax debt, and invoice defaults continuing to rise, the outlook remains challenging for many sectors going forward.