Trade Credit Market Update: February 2026

Trade Credit Market Update: February 2026

Authored by Peter Ghaleb, National Manager - Trade Credit Insurance

Our February market update examines the latest trends in Australian business payment behaviour, insolvencies, and sector-specific stress. While some industries are showing resilience, persistent cost pressures, tighter credit conditions, and global uncertainties continue to challenge businesses across the country.

This update highlights the segments currently feeling the most pressure, what to watch in 2026, and key warning signs that may indicate financial strain for businesses trading on credit.

Market Update

Insolvency rates remain elevated

While Australian business insolvency rates have largely stabilised, they remain well above long-term averages, reflecting ongoing financial pressure across many firms. The corporate regulator ASIC reports that 14,722 companies entered external administration in 2024-25, a 33% increase over the previous year. 2025-26 figures to date indicate a steadying trend, with monthly appointments averaging 1,200-1,300, roughly in line with the same period last year.

Inflation

Inflation in Australia remains above the RBA's 2-3% target range, with annual CPI around 3.4-3.8%. Persistent price growth, especially in labour and local services, continues to erode purchasing power and tighten business cost structures in 2026. For sectors exposed to consumer discretionary spending, such as retail, and hospitality, inflation-driven cost increases come alongside weaker demand. Even as cost pressures ease slightly in some reports, overall inflation volatility sustains pressure on operating expenses and pricing strategies.

Interest rate increase

In response to persistent inflation pressures, the RBA recently lifted the cash rate to 3.85%, marking the first hike after a prolonged pause. Higher borrowing costs amplify financing pressure for businesses reliant on credit, increasing cost of capital and squeezing margins. This is particularly true for SMEs and leveraged sectors like construction. If rates rise further, credit availability may tighten and cost pressures could spread to debt servicing, challenging liquidity for smaller operators.

The Australian dollar

The AUD has shown relative strength in early 2026, buoyed by hawkish RBA policy and risk sentiment, trading near multi-month highs versus major currencies. A stronger AUD benefits businesses that import capital goods or inputs by reducing foreign cost components, but can dampen export competitiveness and compress margins for exporters when converted back to AUD. For exporters and tourism-linked sectors this means tighter price competitiveness abroad, while importers and firms with foreign debts may see cost relief.

Measured confidence, rising exposure

Business sentiment surveys show an increasingly cautious tone. Many leaders are delaying major investments and adjusting hiring plans in response to uncertainty, rising costs and slower payment cycles, while a significant proportion still plans to invest in growth areas like technology. Confidence has weakened notably in sectors such as wholesale and retail, though services like mining and utilities report higher sentiment¹. This mix of caution and resilience suggests businesses are managing pressures pragmatically rather than panicking, moderating investment and cost decisions to absorb ongoing challenges.

What to watch in 2026

• Interest rate direction and timing
  Even small policy moves from the RBA could materially shift insolvency trends. A further rate rise may push highly leveraged SMEs over the edge, while a late-year easing cycle could stabilise margins and restore credit appetite. The timing matters as much as the direction.
• The ATO's ongoing debt recovery approach
  The ATO has resumed firmer debt collection after pandemic leniency. If enforcement accelerates further, businesses with accumulated tax arrears may face increased insolvency risk. For trade creditors, tax debt pressure often surfaces before formal administration.
• Construction pipeline vs cashflow reality
  Infrastructure spending and housing targets remain supportive, but margins are thin and insolvencies remain elevated. Watch whether project pipelines translate into sustainable cash flow or whether working capital strain persists across subcontractor networks.
• SME refinancing risk
  A large number of small businesses rolled over facilities during the low-rate environment. As lending terms reset, refinancing risk could emerge, particularly for firms that have not rebuilt balance sheet strength.
• Global trade fragmentation
  Exporters face growing complexity from geopolitical tension, supply chain shifts and elevated overseas insolvencies. Even stable domestic conditions can be disrupted by international buyer defaults.
• Payment behaviour normalisation
  Extended debtor days may become embedded rather than temporary. Businesses that adapt their credit controls early will be better positioned than those assuming payment terms will revert to pre-2023 norms.

Segments currently feeling the most pressure

Construction

The construction sector continues to face significant financial strain. According to ASIC, construction was the most common industry entering external administration in the first quarter of the 2025-26 financial year, accounting for roughly 24% of all insolvencies¹. Even in 2026 we are still seeing long-established, high-profile firms, move into voluntary administration, citing rising costs, interest rate pressures and broader market uncertainty as key factors. This trend reflects ongoing margin pressure from elevated material and labour costs, cash-flow challenges tied to staged project payments, and tighter financing conditions, all of which elevate credit risk through the construction supply chain, especially for subcontractors and materials suppliers.

Retail

The retail sector is currently experiencing uneven but persistent stress. Data shows invoice payment default in retail hit record highs in November 2025, while retail ATO tax defaults reached a two-year peak in December 2025, signalling cash-flow strain beneath the surface or headline sales figures. Retail insolvencies also remain elevated, with ASIC reporting a 37% increase in retail insolvency appointments in the December 2025 quarter compared to the same period in 2024².

Exporters

Australian exporters remain vulnerable due to global trade challenges and shifting international demand. Economists note that Australian export markets are undergoing structural shifts, including diversification away from reliance on China and reorientation towards new trade partners, which can create uncertainty for export-focused businesses³. Trade-based firms also face payment risks from overseas buyers, whose own economic conditions, currency volatility and geopolitical trade tensions can delay receivables or increase default risk. Diversification trends highlight both opportunity and risk: while spreading export markets can reduce concentration risk, it also introduces new credit exposures and complexities in cross-border payment management, critical factors for trade credit risk.

How to spot red flags

While the overall market may appear stable, underlying pressure can build quickly. Businesses selling on accounts or terms should keep an eye out for early warning signs that a customer may be struggling financially.

• Late or missed payments: Increasingly frequent payment delays from key customers can indicate cash flow stress.
• Renegotiation of payment terms: Unexpected requests to extend existing terms can indicate tightening cash flow, especially where previous payment behaviour was consistent.
• Requests for extended credit: Sudden or repeated requests for higher credit limits can signal liquidity issues.
• Sector-specific stress signals: Insolvency reports or media coverage of high-risk sectors like construction or discretionary retail.
• Unexplained operational changes: Frequent staff turnover, supplier changes, or sudden restructuring can indicate internal strain.

How Trade Credit Insurance can help

In today's environment of elevated payment stress and tighter credit, Trade Credit Insurance provides a vital safety net against customer non-payment. It protects cash flow, supports early risk detection, and helps businesses continue trading confidently. Beyond financial cover, insurers offer credit assessments and monitoring to reduce the impact of defaults and strengthen resilience.

Coverforce has a specialised Trade Credit team offering customised solutions at competitive rates across Australia. Find out more about our Trade Credit and Debtor Insurance solutions here.

REFERENCES

1. https://www.roymorgan.com/findings/10116-roy-morgan-business-confidence-january-2026
2. https://www.asic.gov.au/about-asic/corporate-publications/newsletters/asic-corporate-insolvency-update/asic-corporate-insolvency-update-issue-38/
3. https://www.aicm.com.au/news-item/22198/retails-structural-reset-why-2026-will-separate-survivors-from-strugglers#:~:text=Default%20rates%20are%20trending%20upward,increasingly%20concentrated%20in%20this%20tier.
4. https://www.commbank.com.au/articles/newsroom/2026/01/australias-dependence-on-china-fades-as-global-trade-shifts.html

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