Revealed: The sectors and regions where businesses are most at risk of collapse

The Gold Coast and Western Sydney are the Australian regions where small businesses have the highest chance of credit default, new data from CreditorWatch shows.

The Business Risk Index, released today, ranks the regions and industries most at risk of business default and payments in arrears, which are indications of insolvency risk.

It’s no surprise the Sydney-based creditor reporting agency found businesses in areas hard hit by border restrictions and COVID-19 outbreaks are more at risk of default than those in regions that escaped the worst of Delta outbreaks.

Merrylands and Guildford in Western Sydney are the regions where the probability of default is highest, followed by Coolangatta and the northern Gold Coast in Queensland. 

The rolling 24-month average business-to-business trade payment default rate for the northern region of the Gold Coast indicates a recent increase in defaults and economic downturn. Source: CreditorWatch

Businesses located in the Grampians and Swan Hill in Victoria and the Limestone Coast and Eyre Peninsula in South Australia have the least chance of defaulting on payments, according to the index.

Patrick Coghlan, chief executive of CreditorWatch said the Business Risk Index is an “important barometer” of the nation’s economic health as we navigate bumpy economic conditions.

“This is the first time forward-looking insolvency risk has been measured in this way,” he said.

CreditorWatch calibrates the index using data from about 1.1 million ASIC-registered, credit active businesses and combines the insights with its internal proprietary data.

Businesses in the hospitality and arts and recreation industries ranked the highest for probability of default as lockdowns directly affect their ability to operate.

In fact, 5.9% of hospitality businesses are potential defaulters, in contrast to 4.3% of arts and recreation businesses.

Only 2.7% of mining businesses are likely to default, while 3% of agriculture and health care businesses are expected to default.

The Business Risk Index also ranks the sectors where businesses are most behind in payments.

With COVID-19 shutdowns of the construction sector occurring in multiple states, 12.4% of construction businesses are in arrears by 60 days or more.

Tailing construction firms are businesses in the hospitality industry, with more than 10% behind on payments.

Harley Dale, chief economist at CreditorWatch, said payment arrears in the construction industry are significantly higher than any other industry.

“Unsurprisingly, the accommodation, food and beverage industry scores the silver medal at 11.1 per cent,” he said.

The index paints a bleak picture of business turnover in recent months, with turnover falling 38% year-on-year in September 2021, compared to a 16% drop in September 2020.

External administrations declined by 23% in the September 2021 quarter, however, CreditorWatch expects them to rise post lockdown.

The overall outlook for the national economy, according to CreditorWatch, is that it is in a state of flux.

“While this week’s re-opening of the NSW economy is a positive step forward, it will only be when Victoria exits lockdowns and borders re-open between states and internationally that any sustained recovery can begin,” Dale said.