Hospitality sector under pressure as closures hit record high

The Australian hospitality sector is facing mounting challenges, with business closures reaching a record high of 9.3 per cent in the past 12 months, according to the latest Business Risk Index (BRI) from CreditorWatch.

This means one in 11 hospitality businesses shut down over the past year, up from 7.1 per cent in the previous 12 months.

Soaring costs, declining consumer spending, and shifts in workplace habits are putting pressure on cafes, restaurants, and bars across the country. Rising food prices, energy and insurance costs, higher rents, and wage increases are all eating into already tight profit margins.

As more Australians are tightening their belts due to cost-of-living pressures, hospitality businesses are finding it difficult to cover costs. CBD-based venues, in particular, are struggling with reduced foot traffic as remote work remains popular.

Invoice payment defaults a warning sign

Another worrying trend is the sharp rise in invoice payment defaults, which have jumped 47 per cent year-on-year. Late payments often signal financial distress, and businesses that default on payments are significantly more likely to become insolvent within the following 12 months.

CreditorWatch CEO Patrick Coghlan warns that the challenges for businesses are far from over. “After a tough couple of years with inflation, rising interest rates, and lower consumer demand, businesses now face an added threat from global trade policies, including the potential impact of new US tariffs.”

Hospitality nsolvencies on the rise

Business insolvencies spiked again in February after a temporary drop over the Christmas period. CreditorWatch Chief Economist Ivan Colhoun says the trend is unlikely to reverse anytime soon. “With economic pressures persisting and many businesses still carrying large ATO tax debts, insolvencies will likely remain elevated for the foreseeable future.”

Some unexpected trends have emerged in insolvency data.

The ACT and NSW recorded higher insolvency rates than Victoria, despite economic conditions in Victoria appearing weaker in recent months. Meanwhile, Western Australia had the lowest insolvency rate, buoyed by a strong labour market and a resilient mining sector.

With economic conditions remaining uncertain, small business owners are urged to take proactive steps to safeguard their operations. Reviewing credit policies, monitoring customer payment behaviour, and keeping a close eye on financial health could help businesses weather the storm.

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