Waste services insolvencies surge as defaults climb

Australia's waste services sector has become one of the country's most distressed industries, according to CreditorWatch. Its latest Business Risk Index shows insolvencies in the sector are more than three times the national average.

May insolvencies across the economy fell to a two-year low, but payment defaults jumped sharply, and tax defaults to the Australian Taxation Office rose nearly 20% over the past six months, pointing to broader strain beneath the headline figures.

The data marks a sharp reversal for a sector long seen as defensive because of steady demand from households, local councils and construction activity. Waste services insolvencies are now at their highest level in two years, while payment defaults and arrears of more than 60 days are near historic peaks.

These measures track different stages of financial stress. Insolvencies are a lagging indicator, while arrears and payment defaults tend to signal trouble earlier. When all three rise together, it suggests pressure is becoming entrenched rather than temporary.

Trade payment defaults in waste services recently eased to 3.5% from a record 4.3% in February, but remain well above the national average of 0.6% across all sectors. Arrears have also climbed back towards historic highs, indicating that payment behaviour is worsening across the industry rather than being confined to a small group of weaker operators.

Sector shift

The change is notable because the sector was less risky than the wider economy as recently as 2020. By May this year, waste services' insolvency rates were more than three times the national benchmark.

Several cost pressures are hitting operators at once. Waste collection depends heavily on transport, so higher diesel prices feed directly into operating costs. Many operators, however, work under fixed contracts or agreements linked to consumer price inflation, limiting their ability to pass on sudden increases.

Landfill levies are adding to that burden. The charges are intended to discourage landfill use, but they also raise disposal costs. Larger operators with their own landfill or recycling assets may be better placed to absorb those costs, while smaller businesses face a more direct hit to margins.

Regulatory costs have also risen. Tighter standards on PFAS, hazardous waste handling, and environmental enforcement have increased monitoring, reporting and compliance obligations across the sector.

Pressure is also coming from the industry's links to construction and government work. Construction insolvencies can leave waste contractors exposed when projects are delayed or customers fail, while public sector contracts can involve slower payment cycles that tighten working capital.

Financing costs are weighing on the sector as well. Waste services require significant investment in trucks, transfer stations, treatment facilities, and landfill infrastructure, so higher interest rates can quickly increase debt-servicing costs and make refinancing harder.

Wider economy

Outside waste services, the national insolvency picture looked calmer in May. ASIC reported 1,051 first-time insolvencies during the month, the lowest figure in nearly two years. Overall, insolvencies have been broadly moving sideways for much of the past 18 months, according to CreditorWatch.

Across the first 11 months of the financial year, total insolvencies were about 4% lower than a year earlier, with 13 of 19 sectors showing declines. The biggest improvements in absolute terms came from Accommodation and Food Services, Construction and Other Services.

Not all sectors followed that trend. Retail Trade and Transport, Postal and Warehousing recorded higher insolvency rates than a year earlier, adding to concerns raised by the rise in payment defaults.

Payment defaults in May may reflect the effect of higher energy prices, while tax debt is becoming a more prominent warning sign, CreditorWatch said. The number of companies with tax debts above AUD $100,000 has risen from about 30,000 to around 36,000 over the past six months.

That increase means four of the past five months recorded the largest inflows of new tax defaults outside the immediate period after pandemic-era enforcement resumed. The pattern suggests that more companies are struggling to meet their obligations, even if they have not yet entered formal insolvency.

Patrick Coghlan, Chief Executive Officer of CreditorWatch, said the latest data showed how quickly risk can build in specific parts of the economy.

"What we're seeing in waste services is one of the clearest signals yet that credit risk in Australia is becoming more concentrated, more fast-moving and more behavioural. The businesses that will navigate this environment best are the ones that can spot stress early - in payment behaviour, arrears and changing trading patterns - and act before those pressures turn into serious financial distress. That is why real-time risk intelligence is now essential for protecting cash flow, managing exposure and making confident decisions in a tougher economy," Coghlan said.

CreditorWatch also pointed to broader pressures on businesses, including higher borrowing costs and a 4.75% wage rise under a modern award. Those additional costs could offset any relief from easing oil prices as the year progresses.

The result is a mixed outlook: headline insolvency numbers remain relatively steady, but warning signs in payments and tax debt suggest stress is building in pockets of the economy, with waste services emerging as one of the clearest examples.