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Business insolvencies are a major concern for SMEs due to the risks tied to an over-reliance on a small pool of clients, ScotPac research has found.
Almost one in five small and medium-sized enterprises (SMEs) said their business would not survive the loss of one major client, according to ScotPac research.
The non-bank lender’s biannual SME Growth Index Report found that the over-reliance of SMEs on a single client was a major trend, highlighting the need for smaller businesses to manage concentration risk.
The report, which surveyed 724 SMEs, also showed that SMEs that lost a key client would cause a revenue loss of 22 per cent.
More than half (59 per cent) of SMEs predicting declining revenue growth were in full contraction, three times the level seen in 2019. The finding signalled that further business failures may be likely.
Businesses in the construction and hospitality sectors are particularly vulnerable, with restaurants and cafes struggling to manage rising operational costs and tighter consumer spending.
The latest research showed a continuation of earlier trends – the same ScotPac report from October 2024 showed that 29 per cent of SMEs were at risk of insolvency through the loss of a major supplier or client.
ScotPac said that the findings come after the Australian Securities and Investments Commission (ASIC) data revealed 3,306 companies became insolvent for the first time in the first three months of 2025 and restructuring appointments have seen a sevenfold increase over the past three years.
Construction, which accounts for around 9.5 per cent of all employment, was one of the hardest-hit sectors. More than 2,600 construction businesses became insolvent in the financial year to March 2025, up almost 25 per cent year on year.
ScotPac CEO Jon Sutton said that diversifying funding sources was critical for boosting SME resilience against market fluctuations.
“This feedback tells us that too many SMEs are just one shock away from collapse,” he said.
“Relying heavily on a single client or supplier can create serious vulnerability – especially in a volatile trading environment.
“Over the past 12 months we’ve seen insolvency levels not witnessed in more than a decade, driven by rising costs, aggressive debt collection, and weakening consumer demand.”
Despite large numbers of SMEs being concerned about an over-reliance on a small client pool, data from CreditorWatch said that business stress eased in May, suggesting that July 2024 tax cuts, interest rate reductions, slower inflation, and fiscal support measures are beginning to alleviate some pressure on businesses.
Insolvencies fell 0.9 per cent from April to May and have now dropped 12 per cent from their November peak, CreditorWatch said.
Economic uncertainty is contributing to a widening disparity in how SMEs view future growth prospects, with separate ScotPac research showing that the difference in revenue growth forecasts between the most positive and negative SMEs has hit a record high.
Many small businesses are also looking for funding to bridge the gap caused by cost flow pressures.
You can find out more about finding the right funding solutions to help SME clients at The Adviser’s SME Bootcamp in September.
The SME Bootcamp – which will be held in the Gold Coast, Sydney, and Melbourne across September – is run with support from principal partner Maxiron Capital and is designed to arm brokers and accountants with the technical skills and knowledge they require to help their small and medium-sized enterprise (SME) clients with their tax and financing needs and become their trusted advisers.
The free-to-attend summit equips accountants and mortgage brokers with the knowledge, tools, and strategies to remain relevant, valuable, and proactive as trusted advisers to SME clients in a changing market.
[Related: Record gap in SME revenue outlook]
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