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Zombie businesses waking up to reality and shutting up shop, new data shows

Maja Garaca Djurdjevic
Maja Garaca Djurdjevic
14 October 2020 1 minute readShare

“Zombie” businesses are waking up to the reality of their situation and shutting up shop, following JobKeeper cuts and the most significant federal budget since World War II, a credit reporting agency has revealed.

New data from CreditorWatch has revealed that, for the first time since June, the number of businesses entering into administration has increased, up by 11 per cent in September, while the number of defaults has grown by 23 per cent in the same period.

According to the credit reporting agency, this is not bad news; in fact, it points to a stabilisation in the Australian business sector.

“Seeing businesses enter into administration is never something you want to celebrate. However, September’s increase in default and administration rates does indicate that some businesses which have been reliant on government support are starting to accept the reality of their situation and are taking steps to settle with their creditors,” said Patrick Coghlan, CEO, CreditorWatch.

“What we don’t want to see is businesses that are doomed to fail continuing to operate and taking healthy companies down with them.”

According to the data, there was a significant variance between the states, with businesses entering administration rising in Queensland (24.1 per cent) and Victoria (23.8 per cent) but falling in NSW (down by 1.6 per cent).

“The long-term trend is that zombie companies will continue to survive on government support, and so, the next six months are crucial in determining what position we start our economic recovery from,” Mr Coghlan said.

CreditorWatch also looked into payment times, revealing that while they are high, businesses are showing a fair share of resistance.

In fact, average payment times were down by 10 per cent across industries in September, with 11 of 19 industry groups recording a decrease in the number of days it took to pay bills.

The figures remain high, however, up by 222 per cent year-on-year on average.

“For a signal of how Australian businesses are faring, payment times provide a glaring picture of how tough the environment is, especially when juxtaposed against 2019,” said Harley Dale, chief economist, CreditorWatch.

The most impacted industry in September was financial and insurance services, with payment times inflated by nine days to 62 days in total.

The second largest growth was seen in administrative and support services where payment times edge up three days to 82 days in total, followed by healthcare and social assistance, up by four to 35 days.

“As government support is rescinded, which way this metric tracks will be crucial in determining how well Australian firms fare in our new economic world,” Mr Dale opined.

Zombie businesses waking up to reality and shutting up shop, new data shows
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Maja Garaca Djurdjevic
Maja Garaca Djurdjevic

Maja Garaca Djurdjevic is the editor of My Business. 

Maja has a decade-long career in journalism across finance, business and politics. Now a well-versed reporter in the SME and accounting arena, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies and enabling citizens to influence decision-making.

You can email Maja on [email protected] 

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