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AAP
AAP
Business
Poppy Johnston

Inflation, slowing demand ramps up business risks

Payment defaults lifted 30 per cent over the 12 months to February while credit enquiries doubled. (James Worsfold/AAP PHOTOS) (AAP)

Business-to-business trade payment defaults have surged as firms struggle with cash flow under challenging conditions.

CreditorWatch's monthly business risk report shows payment defaults have lifted 30 per cent over the 12 months to February and credit enquiries have soared 102 per cent.

Defaults are also expected to rise "considerably higher" in most regions over the next 12 months, according to the credit reporting agency's monthly index.

Business-to-business trade receivables, the average value of invoices, continue their decline, sinking 10 per cent over the 12 months.

Insolvencies are also on the rise, with external administrations jumping 46 per cent from January and February to a near 24-month average.

The bulk of the external administrations were in the construction industry, followed by accommodation and food services.

Court actions have also returned to pre-COVID levels.

CreditorWatch chief economist Anneke Thompson said high inflation, rising interest rates, supply chain problems, labour shortages and falling consumer demand were taking a toll.

She said smaller businesses were taking an immediate hit from less discretionary spending and this would likely flow through to the rest of the economy over time.

"The economy is in the early stages of its downturn," she said.

"Prices are still rising, although we appear to have the worst of the price rises behind us, interest rates are likely to need to increase further, and consumer demand is slowing, and will continue to slow."

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