SYDNEY: New data released this week by credit bureau illion, an Experian company, as part of its Australian Commercial Risk Barometer for Octover 2024, reveals that business failure risk has continued to improve over the last quarter (August – October 2024). This improvement is not uniform across industries and regions, however, with some still deteriorating.

Construction industry turns corner

Most notably, the Construction industry has improved, where business failure risk was down 0.2% in the September quarter, suggesting that more favourable trading conditions are beginning to appear in what has been a long period of economic fragility for the sector.

“illion’s data showed that trading growth in this sector is now outpacing inflation, which may finally translate into more stable cash flows and fewer construction businesses in financial stress,” said Barrett Hasseldine, illion’s Head of Modelling.

illion’s data showed the Construction sector’s annual growth significantly outpaced inflation, rising by more than 10% year on year. Rising trade activity from higher consumption contributed to this growth, suggesting that businesses are beginning to see more positive cash flows again.

Improvement in the failure risk of construction businesses may be attributed to better servicing of invoice payments, reducing the risk of insolvencies.

“From the data, we are seeing a 6% improvement in the time taken to pay invoices, and this is also coinciding with greater trading activity,” Barrett added. We therefore believe that the Construction sector may now be operating with more stable and sustainable cash flows, which is great news. Hopefully this translates into lower insolvency rates through 2025, contingent on the state of the broader economy.

“Although a small percentage of construction businesses are still struggling to meet their financial obligations, the majority are doing better than they were.”

Other sectors a mixed bag

In other sectors, Mining and Wholesale trade have also continued to go from strength to strength, each now being more than 40% lower risk than the national average. Growth in the Mining sector rose a huge 16% year-on-year, where ‘wholesale trade’ improved a very respectable 12%.

“The Mining sector, together with Agriculture, have contributed to business failure risk in regional Australia being lower than metro Australia,” Barrett added.

However, illion’s data did show that other sectors are of concern. The Utility sector has deteriorated somewhat, with illion’s analysis showing that its failure risk rose by 1.4% in the September quarter, due in part to a 10% reduction in consumer spending and the payment of trade invoices taking 5% longer.

“The lower consumer spending may simply be due to lower energy tariffs, but if consumption were to fall beyond normal seasonal variations, the failure risk of Utility businesses could rise in 2025; especially as overdue invoices are already on the rise in this sector.” Barrett added. “Any indication of further deterioration would therefore need to be closely monitored.”

illion’s Commercial Risk Barometer highlighted that sectors such as the Food Services industry also continue to struggle, with the business failure risk remaining 40% higher than the national average.

The data showed that although the sector has experienced a 10% rise in consumer spending over the September quarter, this has made little impact, with the sector also seeing a 20% rise in the time taken to pay late invoices. This has gone from 16 days on average in June 2024, to 19 days in Sept 2024. “While it might not sound a lot, it makes a big difference – in addition, the sector has also seen a 1% rise in failure risk over Q3,” said Barrett.

“While higher spending is a promising sign of business activity, the challenges that the Food Services sector faces with invoice payments suggests that a proportion of its businesses may find a difficult road ahead.”

Overall, illion’s data shows that some industries are seeing a rise in business activity while others are delaying payment of overdue invoices. The risk of Food Services, Transport and Utility companies may be of particular concern in 2025, therefore requiring particularly close monitoring. Mining, Professional Services and Agriculture may continue to offer better opportunities for investment and lending, with Construction also possibly eyeing a recovery.

Regional Australia winning, while metro is dragging

Geographically, businesses in metropolitan Sydney, Melbourne, and Adelaide have the highest risk of business failure, currently around 7% higher than the national average. This may be largely because of higher living costs and stressed budgets impacting on household consumption.

Conversely, businesses in regional Australia and in metropolitan centres, whose growth is influenced by regional and rural activity, appear to be faring better.

“For example, when compared to the national average, businesses in metro QLD and WA have 10% and 13% lower than average failure risk, while regional WA, SA, and QLD have 20%, 15%, and 10% lower than average failure risk,” Barrett added. “Even businesses in regional NSW and VIC are faring better than the national average.

“This lower risk is directly related to regional Australia’s relationship with the mining and agricultural sectors – these being 45% and 30% lower risk when compared to the average over all sectors.”

More promising times may lie ahead for some business sectors, and Australia might be beginning to turn the economic corner in terms of construction activity, although this is qualified optimism, as business confidence still appears to be erratic and metro services businesses still showing some signs of stress. illion continues to monitor closely.

ENDS

Media enquiries

David Jones
Head of Corporate Affairs

0477 346 429
David.jones@illion.com.au

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