iscover Trade payment defaults, ATO debts key indicators of insolvency: CreditorWatch
BusinessWhile insolvencies are down 4 per cent year on year overall, they increased for businesses with high ATO debts, retail trade and transport, postal and warehousing sectors, new findings reveal.
CreditorWatch’s research reveals that 21.9 per cent of businesses with ATO debts exceeding $100,000 in the last 12 months are insolvent, finding that the number of these impacted businesses has increased in recent months and was hardest hit in the last four months following the strengthening of tax collection activity following the COVID-19 pandemic.
In CreditorWatch’s June 2026 Business Risk Index, it said that this is of particular concern, as 53.8 per cent of these businesses are sole traders, which it noted: typically operate on tighter cash margins and have lower cash buffers than larger businesses.
“Even a single payment default registered against a company increases the likelihood of insolvency to more than ten times the national average over the following 12 months. Multiple defaults further increase this risk,” the report reads.
“After rising sharply in May, trade payment defaults remained elevated in June, suggesting businesses are beginning to feel the combined effects of higher interest rates and fuel prices.”
Despite the increase in insolvencies for businesses with more than $100,000 in ATO debts, overall, insolvencies have declined 3.9 per cent in FY26 compared to FY25.
CreditorWatch found insolvencies have fallen by 4 per cent in the construction sector and 15 per cent in the accommodation and food services sector, increasing in retail trade and transport, postal and warehousing sectors.
The report found that mining saw the biggest jump in insolvencies (35 per cent), likely due to volatility of smaller operators and exploration activities; retail trade followed (18 per cent) due to margin compression, shifting consumer behaviour and competition from online and low-cost operators; transport, postal and warehousing followed (14 per cent) due to rising fuel costs, interest rates, and competitive intensity; and arts and recreation services (8 per cent) which reflects softer discretionary spending and reduced demand for non-essential goods and services.
“Diverging trends within industries are becoming more pronounced, highlighting that sector-level analysis is increasingly insufficient to understand where risk is building,” the report said.
Instead, the report found that financial stress is emerging at a sub-sector level, driven by differences in cost exposure, competitive dynamics and demand conditions.
Further, CreditorWatch noted: “Increases in early warning indicators such as tax debts and trade payment defaults point to rising financial stress, despite an overall decline in insolvencies during FY26.
“The impacts of the Middle East energy crisis and recent interest rate increases will also contribute to business stress in the year ahead.”
While CreditorWatch chief executive Patrick Coghlan said that insolvency numbers are softening, he noted that the credit data reveals a quiet rebuild of risk.
“Rising tax debts and payment defaults are often the earliest signs of financial distress, and we're seeing both move in the wrong direction. In today's environment, success isn't just about growth - it's about visibility. The businesses making decisions based on timely, reliable risk intelligence will have a significant advantage over those relying on hindsight," Coghlan said.
“The improvement in insolvencies should therefore be treated cautiously. Trade payment defaults remain one of the strongest forward indicators of business failure, with even a single default lifting insolvency risk to more than 10 times the national average over the following 12 months,” the report read.
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Carlos Tse
Carlos Tse is a graduate journalist writing for Accountants Daily, HR Leader, Lawyers Weekly.