There’s finally a small glimmer of good news for businesses that rely on Aussies spending on the ‘nice-to-haves’, with new data from CreditorWatch showing closures are starting to slow across hospitality, construction and arts and recreation.
Before you pop the champers, CreditorWatch says this recovery is “fragile” and could unravel quickly if households slam their wallets shut again.
The October Business Risk Monitor (formerly the Business Risk Index) reveals that recent interest rate relief is starting to flow through to consumers. Household spending rose 0.7 per cent in October, and the Westpac Consumer Sentiment Index jumped 12.8 per cent month-on-month. It’s the first positive reading since February 2022.
Things are looking slightly cheerier but it’s still a tough slog out there. If you’re running a café or takeaway joint, you’re very much still in the danger zone.
Cafes and restaurants still shutting at alarming rates
Despite the recent easing, hospitality remains the highest-risk sector in the country. CreditorWatch found 10.6 per cent of cafés, restaurants and takeaway food businesses closed in the 12 months to November. That’s nearly double the national average closure rate of 5.4 per cent.
Bars, pubs and clubs have weathered the storm a little better, mostly thanks to poker machine revenue and the fact that many are larger operators with deeper pockets. But all hospitality categories are still sitting well above average when it comes to closures.
CreditorWatch CEO Patrick Coghlan warned that operators shouldn’t mistake the recent improvement for safety.
“We’re finally seeing the early signs of a turning point for industries most exposed to discretionary spending, but the data makes one thing abundantly clear: this recovery is fragile,” he said.
“While consumers are beginning to open their wallets again, many businesses, particularly smaller businesses across the hospitality and retail sector, remain under intense pressure. The sharp rise in trade payment defaults and stubbornly high closure rates tell us that now is not the time for complacency.”
Retail still doing it tough
Retail is the one discretionary-heavy sector that hasn’t joined the improvement party. Business closures continue to rise, with some categories in particularly rough shape.
Fuel retailing actually saw closures fall by almost 7 per cent in October, but department stores and hardware, building and garden supplies retailers experienced notable month-on-month increases (7.94 per cent and 2.7 per cent respectively).
Given how tight household budgets have been, and how much retail has relied on discounting to survive the past year, it’s not surprising that more operators are hitting the wall.
Insolvencies hit new cycle high
If you thought closures were bad, the insolvency numbers are even bleaker. October saw a sharp jump in businesses entering insolvency, hitting a new high for the current cycle. Construction, retail trade, transport, postal and warehousing, and professional services all recorded new highs.
Hospitality didn’t reach a new peak this time around, but insolvencies still rose “notably”.
Across the first four months of the financial year:
- Retail insolvencies are up 13 per cent
- Transport, postal and warehousing is up 35 per cent
- Financial and insurance services is up 31 per cent
These increases, particularly in transport and finance, come off fairly low bases, but CreditorWatch notes the trend has been building for months and reflects the lingering impact of high interest rates on cash flow and debt servicing.
Payment defaults rising
If there’s one data point that should make business owners sit up and pay attention, it’s the rise in defaults. Trade payment defaults jumped 13.9 per cent from September to October, and are up more than 20 per cent year-on-year.
This is a critical leading indicator for business distress. CreditorWatch suggests that businesses with one or more registered defaults face an 8–15 per cent chance of insolvency within 12 months.
In short, if your customers stop paying you on time, trouble isn’t far behind.
Small business stress eases… a bit…
CreditorWatch’s Small Business Risk Index, (which measures failure rates against a 10-year average) indicates that small business stress is starting to ease. However, “easing” doesn’t mean “easy”.
Failure rates are still 14.9 per cent above the decade average, and have risen 10.6 per cent over the past year. Hospitality remains the highest-risk sector; agriculture, finance and healthcare remain the safest.
The index is currently sitting in the “safe” band, meaning conditions aren’t worsening dramatically but they’re still far from comfortable.
The economy sits at a crossroads
CreditorWatch Chief Economist Ivan Colhoun says the economy is in an “interesting” position, with mixed signals coming from consumers and businesses.
He notes that while the tax cuts from mid-2024 helped stabilise insolvencies, stubborn inflation means there won’t be more rate cuts any time soon. At the same time, the Reserve Bank expects unemployment to stay near 4.4 per cent for the next two years. This marks a level of stability that’s “unprecedented in the past 50 years.”
Whether unemployment actually stays that low is an open question.
“This leaves the economy at a very interesting crossroads,” Colhoun said, adding that insolvency rates are likely to remain elevated, even if slightly below recent peaks.
“There remain important cost pressures below the surface and ongoing structural changes that suggest a significant decline in insolvencies is unlikely.”
The business impact
So what’s this mean for you and your business? The short version: things are improving, but only just. If you’re in hospitality, retail, or any sector relying heavily on household spending, the next few months will be critical. While the early recovery signs are real, they’re also incredibly fragile.
For now, the best option is for business owners to keep an eye on their cash flow, keep their credit checks up to date, and don’t assume the storm has passed. It’s not blue skies just yet, but at least the rain might be easing.
Source: Flying Solo December 2025
This article by Cec Busby is reproduced with the permission of Flying Solo – Australia’s micro business community. Find out more and join over 100K others https://www.flyingsolo.com.au/join.
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