Recent data confirms the correlation between trade credit defaults and corporate insolvency. For SME businesses through to mid-market enterprises the “non-payment” of a major client is not merely an isolated accounting problem—it is a significant operational risk that can destabilise a balance sheet, triggering systemic cash flow issues.
Trade payment defaults jumped 13.9 per cent from September to October 2025, with an overall increase of 20 per cent year-on-year. This warning bell is echoed by ASIC data showing corporate insolvencies remaining elevated, particularly in the retail and hospitality sectors, as shown in the diagram below.
According to CreditorWatch, companies with even one registered default are 8 to 15 per cent more likely to become insolvent within 12 months. Put simply: if your clients stop paying on time, trouble may not be far behind.
To maintain operational resilience, business leaders must shift from a reactive approach to collections to proactive trade credit risk management.
Insolvencies by state
National Business Insolvencies
Insolvencies in the financial year to March 31, 2025
Here are seven practical steps to mitigate trade credit risk, protect cash flow and thrive amid escalating counterparty risk in 2026.
1. Know who you’re dealing with
Run credit reports and do your due diligence. A robust assessment process is your first line of defence and may prevent headaches later.
2. Spread your risk
Diversify clients across industries and regions so one sector’s downturn won’t derail your business. A balanced portfolio is your safety net in turbulent times – if one sector falters, the others can keep your cash flow steady.
3. Set clear credit terms
Unclear terms and conditions lead to confusion and bad debts. A well-structured Credit Application Form is your foundation for informed decision-making. Make your credit limits, payment terms, and collection process clear and most importantly, document it. When everyone is on the same page there is less chance of surprises.
4. Monitor your clients in real time
Maintain strong monthly aged debtor review processes, track credit accounts closely and put accounts on STOP when payments are overdue. Using tracking tools that alert you to late payments give you a chance to act quickly before debt escalates.
5. Communicate, don’t just collect
Trust is pivotal to good business relationships. Foster transparent, open communication with clients to smooth out payment hiccups and resolve issues early. It’s also wise to schedule regular check-ins with key clients to provide opportunities for communicating any changes to circumstances which may impact payments.
6. Protect your cashflow with Trade Credit Insurance
Trade credit insurance covers organisations when their client doesn’t pay or becomes insolvent. It’s a safety net for unexpected defaults and sends a signal to your partners that your business is stable and serious about financial management.
Why this matters for your business
Trade credit risk management isn’t just about survival— it’s about thriving in 2026 and beyond. By implementing these strategies you can safeguard your cash flow, reduce the chance of unexpected losses and position your business for sustainable growth.
Your Bellrock Advisor can assist you with tailored risk management strategies to mitigate trade credit risk. Please contact us to discuss your needs.
