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Inflation in Australia has risen to 7.8%, which is the highest peak since 1990.  Expectations are that interest rates will remain high for longer, with further increases to come.  Rising interest rates when coupled with inflationary pressures, indicates a corresponding rise in bankruptcies as past trends have proven.

Areas with Maximum Price Increase

The noteworthy surge in prices for the December quarter were felt in the following sectors: with domestic holiday travel and accommodation growing by 13.3%, electricity growing by 8.6%, and international holiday travel and accommodation rising by 7.6%, as reported by the Australian Bureau of Statistics.

UBS Investment Bank recently reported an increase in food prices by 9.2% at leading supermarkets over the year, with the expectations that this inflationary trend prevailing in 2023, thanks to supply chain issues.

The Perfect Storm in the Making

Principal at Jirsch Sutherland and a personal insolvency specialist, Michael Chan, shared that the rise in interest rates simultaneously with an increase in the cost of living at a time when pay rises are unable to keep pace with increasing inflation, hints at history being at the edge of repeating itself.  A perfect storm in the making with personal and professional insolvencies to follow.

Both bankruptcies and the cash rate were in lockstep during the 2007-2008 global financial crisis and the situation looks similar with the appearance of cracks being visible.

Whilst the 1991 recession, led to a sharp economic slowdown in the following years when the cash rate and bankruptcies increased simultaneously.

Following the amnesties of COVID, the ATO is lurking, and regulators are getting their “ducks in a row” as corporate insolvencies are clearly on the rise, and it is only a matter of time before personal insolvencies follow.

Retail and hospitality-based businesses are expected to suffer owing to less discretionary spending due to the increases in living costs. While considering “Zombie” companies that emerged during COVID with the support of government’s incentives, now that these incentives have ceased alongside with more aggressive creditors with debt collections, and the above inflationary pressures and rising interest rates, “The Perfect Storm” is an accurate description.

How to Protect Your Business?

2023 and 2024 will be challenging times and by not acknowledging the situation won’t address the challenges lying ahead.

The question is how to secure the future of a business and control costs at a time when interest rates are out of “my control”?

Our invoice financing and factoring look like the apt answer, as we do not change the cost structure of your facility no matter what the Reserve Bank does.  Though several businesses are currently feeling the stress of rising rates, BCashFlow Positive charges a flat fee (removed from inflationary pressures) as a discount against invoices.  By converting the credit sales into cash, allows for businesses to stay ahead of the game even during inflation, pay their suppliers and business overheads such as wages and tax by leveraging against outstanding invoices rather than core borrowings against fixed assets.

To find out more, feel free to contact us at 1300 937 292.