Business invoice value plummets by nearly a third

The average value of business invoices in Australia has experienced a significant drop of nearly a third over the past year, marking a 28% year-on-year decline, according to the July 2023 CreditorWatch Business RIsk Index (BRI).

This substantial decrease in invoice value indicates that Australian businesses are ordering fewer goods and services each month, resulting in a decline in revenues throughout the supply chain.

In addition to the decline in invoice value, CreditorWatch's BRI also highlighted deteriorating performance in other key business indicators. Trade payment defaults, credit enquiries, external administrations, and court actions have all shown signs of worsening conditions.

The BRI for July reveals that Ballarat has emerged as the region in Australia least likely to witness business failures, followed by Yarra Ranges, both of which are located in Victoria. This ranking suggests that these regions have relatively stable economic conditions and robust business environments.

Key insights from the July BRI include:

• Average value of invoices: Australian businesses have experienced a 28% drop in the average value of invoices over the past 12 months. This consistent and severe decline in invoice value is indicative of the challenging economic conditions impacting various industries.
• B2B trade payment defaults: Trade payment defaults among Australian small businesses are on an upward trend, with an 86% year-on-year increase. These defaults reflect cash flow constraints within the business sector, posing challenges to the overall financial health of small enterprises.
• Credit enquiries: Although credit enquiries slightly decreased from June to July, there has been a notable 66% year-on-year increase. This trend reflects the heightened due diligence measures undertaken by businesses and lenders when assessing debtor risks.
• External administrations: External administrations have seen a 10% year-on-year increase, affecting multiple industries. This rise indicates the financial strain experienced by businesses, leading to a higher number of administrations.
• Court actions: While court actions remained stable from June to July, they have shown a 17% year-on-year increase. This suggests an escalation in legal disputes and potential financial challenges faced by businesses.

CreditorWatch CEO Patrick Coghlan (pictured above left) expressed concern over the significant drop in the average value of invoices, emphasising its impact on the Australian economy.

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“Over the past year, the decline in the value of invoices has been consistent and severe,” he said. “This deterioration is reflected in our other key business indicators: payment defaults, external administrations, credit enquiries and court actions. It will be the industries most exposed to consumer discretionary spending such as hospitality and retail that will experience the toughest conditions across the second half of this year.”

“Our BRI data supports the assessment of the RBA that economic growth is going to slow considerably over the second half of calendar year 2023,” said Anneke Thompson (pictured above right), chief economist at CreditorWatch. “The RBA forecasts GDP to slow to 0.9% over the year to December 2023, down from 1.6% over the year to June 2023. Household consumption has already slowed considerably, with the slowdown expected to worsen as more households come off fixed rate home loans. Household consumption is expected to have only grown by 1.6% to June 2023, and is forecast growth for the year to December is 1.3%.”

The decline in the average value of invoices held by Australian businesses, coupled with the upward trend in trade payment defaults, paints a worrisome picture of cash flow constraints and potential business failures. CreditorWatch predicts an increase in the business failure rate from the current 4.67% to 5.79% within the next year. The food and beverage services sector is expected to be particularly vulnerable due to declining discretionary spending and rising input costs.

Furthermore, regions with older median ages exhibit lower risks of business insolvency, likely due to lower debt levels and established income streams. On the other hand, areas with younger populations and business profiles weighted towards construction, tourism, and retail trade face higher risks of insolvency. The disparity between regions with the lowest and highest risks of business failure is projected to widen, with major differences in the impact of the economic downturn across Australia.

The July 2023 labour force data indicates that weakening conditions are already emerging in New South Wales (NSW) and Queensland, with both states experiencing increases in their seasonally adjusted unemployment rates. While NSW maintains a relatively low unemployment rate of 3.3%, Queensland's unemployment rate has reached 4.5%, surpassing the national average of 3.7%. The construction sector in Queensland has faced significant strain in recent months, contributing to the state's higher unemployment rate.

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