Cases of distress rise in winter of discontent.
1st February 2019.
Increasing reports in the world of business are pointing at a winter of discontent.
No.1 Businesses in critical distress
Begbies Traynor ’s latest Red Flag Alert reveals that the number of businesses in “critical” distress leapt by a quarter to 2,200 in the fourth quarter of 2018 while those in “significant” distress remained roughly flat year-on-year at 481,000. Julie Palmer, a partner at Begbies, said businesses had endured a “winter of discontent”. She added: “It seems, for the last quarter at least, that big business is holding out for a decision on the terms of Brexit in order to see where investment is best placed, which is having a knock-on effect on confidence.”
No. 2 Business Insolvencies rise
The Insolvency Service has published the latest business insolvency statistics for England and Wales for Quarter 4 2018 (October to December 2018) which show that that the underlying number of company insolvencies increased in 2018 to 16,090, the highest level since 2014. Seasonally adjusted corporate insolvencies fell by 9% in Q4 2018 compared to Q3 2018 but rose by 11% compared to Q4 2017.
All types of company insolvency increased in 2018 compared with 2017 except administrative receivership.
Commenting on the Stuart Frith, President of insolvency and restructuring trade body R3, said “After three years of relatively flat numbers, 2018 saw insolvencies creep back up to levels last seen in 2014. The pressure point for businesses most frequently cited by our members is weak consumer demand. People just don’t have much spare cash at the moment, reflected in the rise in the number of personal insolvencies also confirmed today. Although recent government figures showed that the weekly amount spent by households has hit its highest level since 2005, much of that expenditure went on housing and transport, with less left over for consumer outlay. This is having a big impact on consumer-facing businesses, such as retailers and the restaurant sector.”
“This also spells bad news for businesses at one remove from the consumer, such as manufacturers supplying consumer products, shop fitters, or logistics firms. Every business is part of a network and one struggling business will affect others. R3 research from the middle of last year found that one in four UK companies had taken a financial hit following the insolvency of a supplier, customer or debtor in the previous six months, illustrating the reach and impact of the ‘domino effect’.”
No 3. Macro factors also weighing on business
Meanwhile, uncertainty around the shape of the final Brexit deal and future EU-UK trading relationship is already forcing businesses to hold off on investment decisions, again affecting their suppliers and customer networks. It has also prompted some companies to stockpile, putting a squeeze on cash flow and reserves.
An area to watch in 2019 will be public service provision. Businesses, social enterprises and charities in the health and education sectors are being hit by a double whammy: Government funding or subsidies are being cut, while these sectors are also expected to pick up the slack for work that the public sector doesn’t have the resource to carry out anymore.
Government proposals to give itself priority status for repayments in insolvencies may well have a negative impact on the ability of small businesses to finance themselves this year. With uncertainty in the supply chain, many businesses will be seeking to increase their stock levels to counteract this and will require new finance to do so. But if funders are concerned that the Government will take a bigger cut if things go wrong, then lending decisions become much harder.
Across 2018, R3’s members across the UK reported that demand for their services – from advice on turnaround and restructuring processes to formal insolvency procedures – increased, and this has carried over into the start of 2019. We would encourage directors of companies which are finding current market conditions tough to seek out knowledgeable and qualified advice from a professional source. The earlier a company seeks advice, the more options it will have.
Federation of Small Businesses (FSB) National Chairman Mike Cherry, said ““These latest figures show the huge strain that small businesses are currently facing with rising employment costs, unfair business rates, as well as significant uncertainty as the UK, exits the European Union. Both the total number of new company insolvencies as well as underlying total insolvencies have reached their highest levels since 2014, which illustrates the great turbulence that small firms are now up against.
“It’s a great concern to see almost 1,000 self-employed individuals suffered from bankruptcies in Q3 of 2018.”
“The self-employed community, who are 4.8 million-strong, are still denied basic support in too many areas.”
“Our latest figures have found that small businesses are having to spend 15% more on the likes of taxes, levies and employment obligations than they were six years ago.”
“Meanwhile, confidence amongst small firms is at its lowest levels since the wake of the financial crash.”
“These factors, amid the ongoing uncertainty as to what the UK’s relationship will look like with the EU after the 29 March 2019, mean that SMEs are under the cosh more than ever and it’s time that action was taken to prevent more businesses going insolvent in the future.”
Louise Brittain, Partner and Head of Contentious Insolvency at Wilkins Kennedy said “It is very worrying that the number of company insolvencies is at its highest level since 2010. More creditors are forcing companies into liquidation by quite a sizeable amount which means less directors are taking a financial hit.”
“However the rise in Administration shows that directors are trying to take pre-emptive action to sell their business but clearly when that isn’t possible they are waiting for creditors to take action.”
Brian Johnson, business recovery and insolvency partner at H W Fisher & Company said “The reality of Brexit, and the economic uncertainty caused by it, is beginning to bite. That much is clear from the latest insolvency figures. Until there is a greater certainty about Britain’s future, businesses and households will continue to suffer.”
“Company insolvencies – when bulk insolvencies from 2017 are excluded, an aberration caused by the mass closure of personal service companies – rose 10% in 2018 compared with a year earlier and to the highest level since 2014. The economic uncertainty caused by Brexit will be responsible for a great deal of these insolvencies.”
“Large companies are withholding investment decisions, which is already having a significant detrimental impact on smaller companies further down the supply chain. There is plenty of evidence of this happening in both the retail and construction sectors. Moreover, a lot of larger retailers and construction firms are stretching payment terms to the limit, heaping even more pressure on their suppliers. A disorderly Brexit will only exacerbate these issues meaning more companies are bound to go to the wall.”
IoD warns that some businesses are planning to relocate
The Institute of Directors has said that nearly a third of firms have either moved or may yet shift operations out of the UK as a result of Brexit. The Institute of Directors said 11% of firms – chiefly larger companies – had shifted some activities overseas while another 18% were planning to or actively considering it. Some 62% of companies said they had no intention of moving because of Brexit. The IoD survey showed financial and insurance companies were most likely to have already shifted some operations away from Britain, followed by manufacturers and professional, technical and scientific firms. Edwin Morgan, the IoD’s interim joint director general, commented: “We can no more ignore the real consequences of delay and confusion than business leaders can ignore the hard choices that they face in protecting their companies.”
Europe looking dodgy
Italian sovereign debt is hitting record levels at 2 trillion euros and the economy is heading for recession, Europe wide growth is stagnating and
How CPA can help
In this stressful times, you can’t afford to let your overdue accounts drift. You need to take action quickly to recover what you are owed. You can be sure your customers other creditors will be chasing money too so you don’t want to be left behind.
With things changing fast and companies disappearing you need to regularly check your customers too to make sure they are still financially stable and credit worthy. Just because they could afford your invoices last year is no guarantee that they can afford you this year. So credit check your customers and continue to trade with confidence.
In these difficult times, you need strong partners and we can help you do both.
The Credit Protection Association has been serving small businesses for over 100 years. CPA have collected billions on late paid invoices for our members and helped take the strain off business owners during difficult times.
At the Credit Protection Association,we provide a suite of credit management services to help you avoid and deal with late payers.
We provide first class credit information that can help you avoid being over extended to customers who are at risk.
We regularly publish lists of the latest insolvencies but by then it is too late. Our credit reports predict approximately 96% of insolvencies long before they arrive.
Our debt recovery services also chase down late payers, resolving over 80% of debts referred, recovering money that our members can then put to work within their own businesses.
Our members have used this boost to their cash flow to fund investment in new projects, additional materials, new staff, extra equipment or new technology.
At the same time, our credit checks and credit reports are utilised by our members to investigate all suppliers and customers. It is important to keep an eye on your key business partners – Suppliers and Customers – to ensure their are on a firm financial footing.
Our reports help avoid bad payers or being over extended to a customer beyond their means.
We come across business owners who have been burnt before working or providing goods on credit because the hassles were not worth it.
Our services have helped them go back in to trading on credit with confidence
Our debt recovery and credit management services give our members the financial freedom needed to grow and prosper.
And our new Late Payment Compensation department could unlock hidden potential in your accounting records and uncover the hidden compensation you are owed by past customers that could be used to give your business the cash flow injection it needs.
Give us a call to find out how we can help.
James Salmon, Operations Director, 1st February 2019
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