The number of businesses defaulting on payments has increased, according to CreditorWatch.
In May, business-to-business payment defaults hit a new record at just over 140 on the trade payment default index. This was up 21% from April, which itself was a new record.
CreditorWatch said there was a strong connection between defaults and business failures. A business has a 20% chance of failure in the 12 months following a default being registered against it.
This increases the more defaults a business incurs: 42% chance of failure with two defaults and a 62% chance with three defaults.
“We have known for some time now that consumers have pulled back on spending quite dramatically as high interest rates and inflation smashed household budgets. This trend took some time to flow through to businesses but is now showing up in the data in the form of increasing late payment rates and rising court actions, as well as increased business failures and insolvencies,” said CreditorWatch chief economist Anneke Thompson.
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