Australia is facing a dire insolvency crisis, with construction and hospitality bearing the brunt of the impact, according to Equifax. Insolvencies have soared to levels not seen since 2015, marking a 41% increase from last year and a staggering 145.7% surge since 2022.
Scott Mason from Equifax warned that small and medium-sized enterprises (SMEs) and sole traders in these sectors are particularly vulnerable. Equifax's data reveals a troubling correlation between business insolvency and mortgage arrears. Sole traders in construction are 60% more likely to face early mortgage arrears compared to the average consumer, while SMEs are 30% more likely. Similarly, sole traders in hospitality face a 75% higher risk of mortgage arrears.
The strain extends across regions, with Western Australia and South Australia experiencing double the rate of early mortgage arrears among sole traders. Victoria follows closely behind with a 44% increase. As businesses struggle to stay afloat, they face tough decisions about prioritising expenses, leading to lapses in mortgage repayments.
One contributing factor is the delay in payment of dues, with Days Beyond Terms (DBT) averaging 6.5 days, and those in the construction trade settling payments an average of 10.2 days beyond terms.
To mitigate this crisis, businesses should prioritise effective procurement decisions, additionally strategically timing of payments to suppliers and contractors to support cash flow. Furthermore, implementing robust financial management practices and seeking government support where available can provide much-needed relief to struggling businesses. If you would like to discuss any of these topics, you can reach out to our team of experts who are ready to help and see your organisation succeed.
Source: https://www.9news.com.au/national/insolvency-tsunami-arrives-in-australia-construction-and-hospitality-sectors-hit-hard/2e82ea28-5405-475e-b2b6-9bbd4ba9e095