One in eight: hospitality's closure rate says the worst is still ahead

CreditorWatch's July Business Risk Index put the closure rate for cafés, restaurants and takeaway food businesses at 12.03 per cent over the preceding twelve months, against a national rate of 6.69 per cent across all industries. Of every hundred hospitality businesses trading a year earlier, twelve had stopped.

What gives that number force is the line it sits on. The same credit bureau recorded a hospitality closure rate of 7.1 per cent for the twelve months to February 2024, then 9.3 per cent to February 2025, which it called a record high at the time. The rate has not plateaued. It has climbed through three readings.

The forward indicators in the July index were already the worst in the economy. Some 10.21 per cent of cafés, restaurants and takeaway businesses were 60 or more days in arrears on their payments, nearly double the national average of 5.36 per cent and the highest arrears rate of any sub-industry. On trade payment defaults, where a supplier formally registers a default against a customer, the sector recorded 1.15 per cent against a national average of 0.31 per cent, close to four times the rate.

CreditorWatch chief executive Patrick Coghlan was explicit about which measure matters, saying the closure rate reflects pressure the sector has already absorbed while the trade payment default rate is the number worth watching because it points to what is still ahead.

Two months on, it points further. The September Business Risk Index found only 48 per cent of invoices nationally were paid by their due date, down from 58 per cent a year earlier. The share outstanding beyond 60 days doubled to 10.1 per cent, the highest since April 2018. 

Trade payment defaults rose 26.1 per cent over the year, close to a record. Food and beverage services remained the weakest sector in the country, with 19 per cent of payments more than 60 days overdue against 10 per cent a year before. Defaults on Australian Taxation Office debt reached 37,577, up 20.7 per cent.

Coghlan described the September data as a clear escalation in business cash flow pressure, and noted that record tax defaults show businesses falling behind on what they owe the tax office, not only their suppliers.

The sector has nothing to absorb any of it with. The Australian Restaurant and Cafe Association, in submissions to the Reserve Bank of Australia, puts net profit across the restaurant and café segment at under 5 per cent, citing IBISWorld, and notes that 91.4 per cent of these businesses earn less than A$2 million a year.

One IBISWorld industry snapshot is narrower again, showing profit of A412.6milliononrevenueofA15.9 billion, a margin of 2.6 per cent. Energy, rent, food, beverage and wage increases arriving together leave no room on numbers like those.

Not every reading points the same way. The Reserve Bank's October Financial Stability Review found household and business borrowers broadly resilient, with arrears low, and judged that spillovers to the financial system from insolvencies have been contained because the firms failing carry little bank debt and are small.

The Reserve Bank is right that this is contained, and that is the point rather than the consolation. A sector can be destroyed without troubling a bank, because the debts that kill a café are owed to its suppliers and to the tax office, and neither shows up in a lending book. On MPJ's reading the September data has already settled the question of direction: closures through FY27 will exceed FY26, and the official insolvency count will keep understating them, because a business that shuts quietly and pays nobody never becomes an external administration. The transmission worth watching is upstream. When a fifth of a sector's payments run past 60 days, suppliers tighten terms across the whole book, and the operator who loses credit is often the one who was still solvent.