Insolvencies still at decade highs after 23% increase.
31st October 2019.
James Salmon, Operations Director.
We see a massive surge in personal insolvencies, company insolvencies and in particular a new high in retail insolvencies. We look at the affect on consumer confidence and calls for company accounts to reflect long term concerns.
Personal insolvencies at decade highs
The number of individuals in England & Wales going insolvent due to debt has jumped by more than a fifth in the past year. There were 30,879 cases in the three months to September, up 22.7% on the same time a year ago
The number of people going financially insolvent across England and Wales has remained at near-decade highs after a surge in individual voluntary arrangements, official figures from The Insolvency Service show.
There were some 19,973 individual voluntary arrangements (IVAs) between July and September – up 43% compared with an “usually low” number a year earlier, according to the Insolvency Service.
But IVAs were also higher than the previous quarter, rising 1.4%.
Continued access to easy money, and the prevalence of a cashless society makes it increasingly difficult for consumers to monitor their spending and maintain a budget effectively
Compared with the previous three months, the total number of personal insolvencies lifted 0.6% between July and September, according to the data.
The Insolvency Service said personal insolvencies have now remained at the highest quarterly level since the end of 2010 for the past four quarters.
But the number of people entering bankruptcy fell, down 2.6% to 4,122 compared with the last quarter. Although that comes after they reached the highest level in more than four years in the last quarter between April and June.
Still, bankruptcies were down overall year-on-year, compared to the comparative 12 months, by 1.2%.
The number of debt relief orders (DROs) increased by 0.3% in the third quarter to 6,784 compared with the previous three months, but were down 3% year-on-year.
What they said
Alec Pillmoor, personal insolvency partner at RSM, said Brexit uncertainty may be a contributing factor at work in pushing up personal insolvencies.
But he added: “Continued access to easy money and the prevalence of a cashless society makes it increasingly difficult for consumers to monitor their spending and maintain a budget effectively.”
He also raised concerns over the rising numbers of 18 to 25-year-olds becoming insolvent – which RSM estimates at more than 7% of total quarterly insolvencies.
“It is entirely feasible that those within the 18-25 age group are without financial experience or understanding, and in the absence of sufficient education from schools or finance providers, it is difficult to see these trends slowing any time soon,” he said.
Commenting on the figures Matthew Waghorn, Partner at Wilkins Kennedy said “This shows that people are continuing to carry too much personal debt but that they are trying to take control of their finances by realising they can’t carry on with the same spending patterns.”
“Consumers are seeking professional help to attempt to improve their personal debt which is the most sensible course of action and has led to a continued rise in the number of individual insolvencies.”
Duncan Swift, president of insolvency and restructuring trade body R3, said “Today’s figures provide a worrying insight into the state of personal finances; the comparison with the same quarter last year shows an especially steep increase in personal insolvencies.”
“British consumers’ confidence is low – they’re spending less, the economic uncertainty is putting them off making big purchases, and they are pessimistic about the economy and how it will fare over the next year.”
“Although real wages have hit a recent high, they are still lower than they were before the financial crisis. Unemployment may be low, but it’s not necessarily secure for everyone. The most recent figures [June-August of this year] show that the number of people in full and part-time employment fell, while the number of self-employed people increased in the same period.”
“Consumer borrowing has increased at the slowest rate for five years, although that may be more of a reflection on the low level of consumer confidence in the UK, with people preferring to save rather than spend – and Britons are more worried about their personal finances than they have been for many years.”
Rise in company insolvencies, figures show
New figures reveal that the headline corporate insolvencies of such firms as Thomas Cook, Jack Wills, QuickQuid, Karen Millen are just the tip of the iceberg, and that more and more firms of all sizes are collapsing.
Figures from the Insolvency Service show that in the third quarter, the number of companies falling into administration reached a five-year high, with 484 firms calling in the help of accountancy firms in England and Wales, a 20% rise on the previous quarter, which saw a considerable dip in the number of administrations.
The figure jumps to 4,355 when looking at overall company insolvencies in the three months to the end of September, a 0.4% increase on the second quarter. The construction industry has seen the highest number of new underlying company insolvencies over the past year. Administration and support services, and wholesale and retail follow.
The third quarter also saw the number of individual insolvency rise across England and Wales by 23% year on year.
Brexit turmoil to blame
Duncan Swift, president of insolvency trade body R3, has said that this trend is down to the political turmoil and uncertainty brought about by Brexit, as businesses were concerned that there would be a no-deal exit from the EU over the summer.
Since the 2016 Brexit vote, the UK economy has slowed, and businesses have been facing the brunt of the pressure. Although the first quarter saw a rise in growth as a result of stockpiling in preparation of the March 29 Brexit deadline, figures now show that not all UK regions benefitted.
Mr Swift said: “Uncertainty and stop-start stockpiling are among the factors hitting recruitment, investment, and wider business health, and we’re seeing more businesses worrying about their cashflow levels and their order books over the next quarter and the next year. Business and consumer concerns about Brexit, the political uncertainty in the UK and the direction of travel of the UK’s economy are generally depleting order books.”
RSM head of restructuring, Graham Bushby, has also blamed the uncertainty surrounding Brexit, compounded by “a slowing in some of Europe’s major economies such as Italy and Germany, as well as ongoing concerns around the impacts from a slowdown in China.”
Calls for reform
Writing in The Times, partner at law firm Watson Farley & Williams, Stephen Parker, says that the UK needs to develop a new insolvency regime.
He writes that the Government’s 2018 proposals for potential insolvency reforms are not likely to be effective, commenting: “The time has now come for bolder reforms, with all the benefits that will flow from having an insolvency regime that is fit for purpose.”
Labour’s business committee chair, Ravel Reeves, has said that accountancy firms are not taking the appropriate steps to ensure that they are “doing the right thing.”
Ms Reeves has also called for urgent reform in order to improve audit quality, and has referred to the collapse of Thomas Cook and builder Carillion as examples that the Big Four’s industry is “not willing to make the changes needed.”
Speaking at a hearing with representatives of Thomas Cook auditors EY and PwC, she asked, “How many more cases of egregious accounting do we need before your industry opens its eyes and recognises that you are complicit in this and that you need to reform?”
What’s to come?
Proposals from two government-backed reviews suggest the creation of a new regulator, requiring companies to appoint two auditors, and splitting the audit and advisory services at the Big Four. A third review into the role of audit reports is to be released by the end of the year.
Andrea Leadsom, Britain’s business minister, recently stated that the government would wait for the third review before proposing new legislation, in early 2020, which would then take a year or two to be implemented.
Retail insolvencies hit five-year high
Retail insolvencies have risen by 16% compared to five years ago, finds law firm RPC.
Every time with think we have reached a nadir for the retail sector, yet new depths are plumbed.
1,252 insolvencies were reported in the sector in the last year, up from 1,232 the year before.
The figures from law firm RPC reveal insolvencies in the sector have hit a five-year high and are 31% higher than the 958 insolvencies in the year before Brexit.
Tim Moynihan, senior associate at RPC, said: “We are seeing a number of insolvencies where existing backers are no longer willing to put in further debt or equity to tide those businesses through the current weak economy. That’s a problem as many need to increase their investment to ensure they can take advantage of the continued shift to e-commerce and survive what may be a temporary reduction in demand.
“Retailers have also now had six months since the 5% rise in the minimum wage – costs that have to be borne by shops themselves as they have a low chance of passing that cost onto customers.
“Hopefully there is some good news on the horizon as we get towards a Brexit deal.”
Political uncertainty causing insolvencies
A lack of investment and the continuing uncertainty surrounding Brexit are causing company insolvencies to soar.
Insolvency statistics published for July to September this year reveal a total of 4,355 company insolvencies in England and Wales, which was 0.4% higher than in the second quarter and the highest underlying level of company insolvencies in any quarter since the first quarter of 2014.
The number of companies entering administration in the third quarter rose to 484 from 403 in the previous quarter while there were 89 company voluntary arrangements compared with 92 between April and June and 94 the previous year.
Political turmoil and personal finances damaging consumer confidence
The GFK consumer confidence index fell from -12 to -14 in October as shoppers’ uncertainty continued to be knocked by Brexit and the state of their personal finances.
Optimism about personal finances fell from 4 to 1 and is now close to negative territory, while pessimism about the general economic outlook fell from -35 in September to -37.
Consumers cut back on big-ticket purchases, with the “major purchase index” falling from 3 to 1 in October.
Joe Staton, client strategy director at GFK, said: “This deterioration in sentiment regarding our personal financial affairs is worrying, as strong consumer spending has been the main driver of economic growth since the referendum in 2016 against a backdrop of low inflation, low interest rates, low wage growth and high employment.”
FRC calls for longer view on company risks
The Financial Reporting Council has said that companies must take a longer view in spelling out to shareholders the risks they face from issues such as Brexit and climate change.
Companies currently set out in annual reports why they think they can remain a “going concern” for the next 12 months, but the FRC wants them to take a longer view.
How companies have justified their going concern assessment has become a political issue after the collapse of travel firm Thomas Cook, prompting the FRC to take a tougher stance. “The FRC expects companies to think beyond the period covered by their viability statement and identify those key risks that challenge their business models in the medium to longer term and have a particular focus on environmental issues,” the regulator said in a statement.
The FRC said that in times of uncertainty, whether created by political events, general economic conditions or operational challenges, investors look for greater transparency in corporate reports to inform their decision-making.
“We expect companies to consider carefully the detail provided in those areas of their reports which are exposed to heightened levels of risk; for example, descriptions of how they have approached going concern considerations, the impact of Brexit and all areas of material estimation uncertainty,” it added
Do you sell on credit?
With rising insolvencies it is essential that you stay on top of the credit limits you grant customers and watch carefully for any late payments.
Those customers in trouble will look for the easiest option to delay their insolvency and get credit – even if they know they won’t be able to pay. Don’t let it be you that’s left being owed the money..
You can’t just assume your customers can and will pay you eventually, no matter who they are.
It is essential to have credit management systems in place to monitor and check your customers credit worthiness.
It is also best practice to use a trusted third party like CPA to make sure you are paid on time by customers, no matter how good a name they have.
About CPA
The Credit Protection Association can help!
Formed in 1914, CPA has been providing credit management services to SMEs for over 100 years.
At the Credit Protection Association, we provide first class credit information that can help you avoid being over extended to customers who are at risk. Our monitoring service can flag up warning signs long before the end, giving you the chance to adjust and reduce your exposure. We provide recommended credit limits and credit scores on a traffic light system and can help you set appropriate credit policies for your customers.
We regularly publish lists of the latest insolvencies but by then it is too late. Our credit reports however predict approximately 96% of company insolvencies long before they arrive.
Companies in trouble usually have very bad cash flow and they try to deal with it by delaying payment to their suppliers, increasing your exposure to them.
If you supply on credit, help us help you identify the risks.
Why use a third party collector?
As a third party collector, we can also get your payments prioritised over those who are not as hot on collections. When you customer receives a letter from the Credit Protection Association regarding their outstanding account, they are going to want to get that resolved as a priority. Our overdue account recovery service can get your unpaid invoices to the top of their “to do” list and get your invoice paid.
Over the years we have collected billions in overdue invoices for our customers.
Our debt recovery and credit management services give our members the financial freedom needed to grow and prosper, while our new Late Payment Compensation department could unlock hidden potential and offer the compensation needed to springboard your business to success.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
Ready to speak to an advisor?
For help or advice on credit management, entirely without obligation.
Call us today
0330 053 9263
CPA is passionate about late payment
The Credit Protection Association has been protecting smaller firms against poor payment practices for over 100 years.
We are extremely passionate about breaking the late payment culture that holds back the UK economy and threatens many SMEs with cash flow difficulties being the single biggest killer of Britain’s small businesses.
If you were regularly paid late we can help. Those former customers used you to boost their own cashflow, regularly paying you late.
As a result you had extra costs, you had the distraction of having to chase payment, you had opportunity costs because your capital was tied up in their late invoices.
Under little used legislation, you are entitled to compensation for those late payments.
Now you can boost your own cash-flow.
CPA can help unearth the those hidden treasures.
We have the technology to reveal the compensation you are due and we have the extensive experience and expertise to then turn those claims into cash.
Yes, CPA can help you boost your business cash-flow.
Don’t let your bankers control you, contact CPA today.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
Do you realise you could be sitting on a fortune?
Late payments often result in a cash flow crunch and leave SMEs in need of a cash injection.
If you sold B2B on credit then there may be a hidden source of capital you can call on.
If you fancy an bit of extra cash in your business, rather than jumping through hoops with your bank, you could look to uncover the resources from an unexpected source within your own business.
Not many are aware but there could be a hidden fortune within your business, sitting there, just waiting to be uncovered and released.
We can help you uncover the pile of gold, you didn’t even know you were sitting on.
If you trade with other businesses and were often paid late then you could be entitled to significant compensation.
Under little known and under-utilised legislation your business could be due huge amounts in compensation that you didn’t even know about.
Let’s be clear – this is not a way to weaken any customer relationships you value. It is one that identifies who’s been paying late and then recover the potentially significant sums in compensation using Late Payment Legislation from businesses where the relationship has already ended.
You can pick and choose who you want us to follow up – but once we’ve agreed which companies you’d like to pursue compensation from it’s a fast process and there’s no financial outlay to you whatsoever. My team at CPA put its expertise to work to recover the compensation due and fight late payment culture.
That compensation could provide the cash boost your business needed.
But don’t delay, that compensation evaporates if not claimed within six years of the late payment.
How can CPA help?
CPA has developed a unique technology to dig into your accounting records and discover the cash injection you are due by means of compensation. The software does all the hard work. Our software interacts over the cloud with over 300 different software packages, working directly with your accounts package, just so long as it’s stored on a computer.
We recognise that most companies do not have the resources to spend time on the identification and calculation of Late Payment Compensation. Our service can produce an Analyses within just a few days with (usually) less than 30 mins of co-operation from our clients. We work directly with over 300 accounting packages but can also work with bespoke accounts packages. Indeed, speed is essential as the oldest invoices may fall foul of the 6-year time limit.
Once the Sales Ledger Analyses is made available to clients, all that is required is that management decide which commercially sensitive ex-customers to remove from the list and return it to us.
CPA then uses its years of collection experience to explain and recover the Late Payment Compensation Claims. Clients do not handle any part of the recovery process as our team will take all communications from the companies against who the claims has been made. Often, it’s simply a case of explaining the legislation, sometimes we have to go all the way and enforce the legislation through the courts.
The result is that we are realising clients’ claims worth tens and sometimes hundreds of thousands of pounds which, of course, is pure net profit. You may also be among the recipients of “hundreds of thousands of pounds” should you elect to take advantage of our services.
We do the work, you receive the cash.
If you have supplied goods and services to businesses on credit and were regularly paid late then you could be due significant sums in late payment compensation.
We are talking to companies and unearthing claims in the hundreds of thousands from former business customers who paid them late. Large business customers who abused their power to inflict unfair and sometimes illegal payment practices.
We are helping business owners who are looking to boost the returns from their business before they retire. We are helping businesses who have lost major clients after years of loyal service to get properly compensated for systematic late payment. We are helping companies that were looking to close down, who looked insolvent and finding that cash injection they need to avoid insolvency.
Those former clients who regularly paid you late can finally be made to pay.
Ready to speak to an advisor?
For help or advice on credit management, entirely without obligation.
Call us today
0330 053 9263
The Credit Protection Association is a credit management company established in 1914. If you supply goods or services on credit then we can help you!
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections