Payment defaults have lifted by 53 per cent compared with the same time last year, according to CreditorWatch's index that measures business risk.
Businesses struggling to pay one another is typically a sign of financial stress, with high inflation, rising interest rates, labour shortages and supply-chain disruptions starting to take a toll.
Food and beverage companies saw the sharpest surge in their inability to pay up, followed by the arts and recreation sector and the education and training sector.
CreditorWatch head Patrick Coghlan said the lift in payment defaults was disturbing.
"The multiple challenges confronting many businesses, whether they be rising inflation and interest rates, labour shortages or the ongoing impacts of the COVID pandemic, are all conspiring to make it that much tougher to pay invoices," Mr Coghlan said.
He said the rise in defaults and insolvencies was somewhat expected as pandemic measures eased.
Small businesses tend to be the least resilient to rising costs and interest rates because their margins tend to be thin and cash reserves low.
The index also found court actions - another indicator of business health - were up 51 per cent year-on-year.
However, external administrations were down nine per cent for the month, but still up 58 per cent annually.
Despite the warning signs that small businesses are in trouble, overall business confidence and conditions remain rosy.
The NAB business confidence survey saw business confidence rise by three points to +10 index points in August, while conditions rose one point to +20 index points.
Mr Coghlan told AAP business owners and leaders were generally bullish, despite economic headwinds such as supply-chain disruptions and inflationary pressures.
"There's a sense that nothing can be worse than lockdowns, a sense that 'If we can get through lockdown, we can get through this'," he said.
CreditorWatch chief economist Anneke Thompson said rising interest rates were yet to be fully felt by mortgage holders and businesses.
"We expect that the real pressure will start to mount by October/November, right before the Christmas shopping period," Ms Thompson said.Â
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