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The entire world is still suffering from the aftermath of the Covid-19 Pandemic. It has adversely affected millions of lives, international economies, and educational systems, but the worst hit has been taken by businesses worldwide. Talking about our own economy, recent ASIC insolvency statistics demonstrate that Australia’s formal insolvency appointments remain well below historical averages. The situation is creating increasing pressure on the Australian economy and business growth. But, why is this happening? What exactly is causing the rise of insolvencies? If you’re also looking for answers to these questions, read through this post!

Insolvencies set to increase

2022 has seen Insolvency rates jump back to pre-COVID-19 levels, with many experts including the Reserve Bank declaring business failures are poised to increase further with uneconomic zombie firms collapsing after the expiry of pandemic-era government support programs. In addition to this, rising costs and a crackdown by the ATO on unpaid debts, is placing further pressure on firms and there is an expectation that companies entering external administration as well as the flow on of business-led personal insolvencies will ramp up to record levels in the next 12 months.

Company failures and businesses entering external administration are now at the highest level since November 2019.

The largest increase in administrations over the past year has been in the construction sector where firms are laying off workers or collapsing in response to supply shortages and sharply increasing material costs. Whilst manufacturing, most notably on the east coast, has been hit by increasing energy prices on the back of coal power outages surging natural gas prices and an unstable global energy market due to the war in Ukraine has seen a sharp increase in recent months of these businesses going into administration.

When you then add a more aggressive tax office in regard to debt collection now that the pandemic-era amnesty is over as well as rising interest rates, insolvencies were more likely for vulnerable businesses as they drained cash buffers to cover rising costs, said The Reserve Bank.

What do the experts say?

The previous quarter has been a challenging one for the Australian economy. Having said that, many international and domestic factors have adversely created increasing pressure on businesses. CreditorWatch chief executive Patrick Coghlan has recently stated that “business insolvencies would further increase” with their August business risk index showing court actions against Australian companies increasing by 51% over the past year. A sign that the tax office and big banks were collecting bad debts.
The multiple challenges confronting many businesses, being a combination of inflationary pressures, increasing interest rates, labour shortages, outgoings rising or the ongoing impacts of the COVID-19 pandemic, whilst revenues have remained stagnant, are all factors conspiring to make it that much tougher to pay invoices, and for many won’t be sustainable for much longer.

The Bottom Line

While many businesses are still struggling to get back on track, you can stand out from the crowd by improving your cash flow. In doing so, BCashflow Positive can assist you in keeping your business liquid, by removing the waiting game of customer payments and turning those credit sales into cash. This allows your business to keep their end of the bargain, by paying accounts and bills on time and potentially claiming supplier discounts by being in a “cashed up” position.
If you’re ready to take this revolutionary step and want to know more please call us on
1300 937 292 or by visiting www.bcashflowpositive.com.au