Businesses in the UK are starting to decline following a significant rise in company insolvencies last month.
Recent insolvency service data shows company bankruptcies surged to 2,308 in August, marking a 33.6 percent increase compared to July.
Nicky Fisher, president of R3, the UK’s insolvency and restructuring trade body, commented: “August’s corporate insolvency figures were their highest for this month in four years as a mixture of long-term economic issues, director fatigue and creditor pressure saw more companies enter an insolvency process in an attempt to resolve their financial issues or shut their doors.”
Creditors’ voluntary liquidations remain high as an increasing number of directors choose to wind down their firms. Meanwhile, compulsory liquidation numbers reached their “highest” this August in four years as creditors continue to pursue the money they are owed.
Ms Fisher noted: “August’s administration figures were the highest monthly figure we’ve seen since January 2019, which is a sign that more and more businesses are at a point where they are in need of specialist help to survive – and that a sale or a liquidation may be their only options.
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“The sad fact is that businesses are being hit from a variety of angles – and all these blows have an effect on their bottom line. Cost inflation has been a problem for some time and while this is expected to ease it is still sitting higher than many had predicted.”
James Burgess, head of commercial at Atradius UK, one of the UK’s largest trade credit and insolvency firms, said the firm’s own data reflects a “staggering” increase in claims for late or failed payments.
According to Atradius UK, the number of claims for late or failed payments reported to them in Quarter Two (Q2) of 2023 was 26 percent higher than in the same period in 2022, and 165 percent higher than in Q2 in 2021.
Mr Burgess said this means “businesses aren’t yet out of the woods.” However, he noted: “There is light at the end of the tunnel with August retail sales increasing by 4.1 percent.
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“The final August bank holiday along with a summer surge in spending may prevent these businesses from the dangers of insolvency but companies must remain vigilant and acknowledge the risks of insolvency.”
Mr Burgess suggested that if interest rates are to increase, businesses could face challenges. However, if interest rates drop to below four percent, businesses should be able to “come out on the other side”.
He said: “We at Atradius are predicting that this is possible with the current interest rate trends. Albeit slowly, interest rates are decreasing each month suggesting that they will eventually fall to a point that will benefit businesses and result in a triple lock.”
“One of the major reasons firms find themselves filing for insolvency is the fall down of supply chains, and this will have huge implications for firms during a recession. If a customer fails to pay on time – or at all – the domino effect on supplier firms is wide-reaching, particularly at times when cash is tight.”
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However, businesses almost “never” go into insolvency overnight, and Mr Burgess said there are a number of “warning” signs suppliers should look out for beyond just late payments. These can include taking advantage of full credit lines, a change of banks, or a high turnover among senior managers.
Mr Burgess said: “It’s crucial firms have robust and updated financial insight and forecasts and at a time of high volatility, this could be a determining factor as to whether a company flourishes or fails.”
Company insolvencies are on the rise globally, with nations such as Germany and France notably suffering as a result of slow or stagnant economic growth.
Ms Fisher added: “Our message to directors is simple: be alert to signs your business could be financially distressed and seek advice as soon as they show themselves.
“If you’re having problems paying wages, staff or suppliers, if stock is starting to pile up, or if you’re worried about your business and its finances, that’s the time to speak to a qualified advisor.”
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