The number of businesses going into administration rose by 50% in February 2021, reversing a decline that had been ongoing for a year, according to CreditorWatch’s latest Business Risk Review.
That comes amid news that inquiries for credit went up by a third, indicating that while some businesses are failing, general trading conditions are getting better and the economy is rebounding after the COVID-19 slump.
CreditorWatch’s Business Risk Review is a study that charts insolvencies, defaults, administrations and commercial debt-related court cases across Australia. While the month-to-month number looked bad, CreditorWatch CEO Patrick Coughlan pointed out that the total number of administrations was still lower than the corresponding month in 2020.
“This is a sign of the commercial climate returning to more normal conditions,” said Patrick Coghlan, CEO at CreditorWatch. “This figure is likely to rise again in the coming months, as JobKeeper ends and the three-month reprieve on credit arrangements for struggling smaller businesses comes to a close.”
“This could prompt a rash of insolvencies and, subsequently, redundancies, which could be a destabilising force on the local economy. The number of arrears and court cases related to bad debts tend to rise before insolvency numbers lift, and whilst there's no evidence of this yet, an increase following the end of government incentives at the end of March is a strong possibility.”
As for the rise in credit inquiries, CreditorWatch’s chief economist Harley Dale said that it was largely due to the economic recovery and the willingness of businesses to move forwards after the pandemic.
“The February credit inquiry figure is the highest monthly number since August 2020. On a quarterly basis, credit inquiries are up by ten per cent in the three months to February 2021, compared to the equivalent period twelve months prior,” he said.
“Many businesses are ready to thrive in a post-COVID environment after becoming leaner and adapting their business models so this is very encouraging and will be essential in kickstarting a chain reaction effect across both the business sector and wider economy.”