More than 53,000 UK businesses are now in critical financial distress, according to new research from BTG (Insolvency specialists Begbie Traynor Group)., with a further 674,000 firms experiencing significant financial distress.

The number of businesses in critical distress has risen 9% over the past year, with some of the sharpest increases seen in consumer-facing sectors. Leisure and cultural businesses saw critical distress rise by 27.1%, Hotels & Accommodation by 26.6%, Health & Education by 22.9%, Sport & Health Clubs by 21.0%, Wholesale by 20.7% and Food & Drug Retailers by 18.4%.

BTG has warned that further increases in inflation or energy costs could accelerate financial pressure and that, because insolvencies typically lag periods of financial distress, the UK could see an increase in business failures during 2027.

“Any further increases to energy costs or inflation could accelerate financial distress, and many will be thinking about restructuring or refinancing activities in a bid to improve their current situation,” said BTG Managing Partner Julie Palmer. For companies unable to secure those lifelines, deeper trouble may lie ahead. “With insolvency rates typically lagging economic distress, we could see increases in insolvencies in 2027,” said BTG Executive Chairman Ric Traynor.

For CPA Members, these figures are a timely reminder that formal insolvency is often the end of the process, not the beginning.

Financial problems can develop for months before a customer enters administration or liquidation. During that period, changes in payment behaviour may provide important early warning signs.

Watch for changes in customer behaviour

A customer who has historically paid reliably may begin to:

  • Pay progressively later
  • Miss previously agreed payment dates
  • Ask for longer credit terms
  • Increase the amount of credit being used
  • Make repeated promises to pay without following through
  • Raise unexpected or minor disputes when payment becomes due
  • Become harder to contact when invoices are overdue

None of these automatically means that a business is heading towards insolvency. But a change from a customer’s normal payment pattern should prompt closer attention.

When financial pressure is rising across the economy, historic payment performance alone may no longer provide enough reassurance.

Use monitoring to spot changes earlier

CPA Members should ensure that important customers are being monitored, particularly where significant credit exposure has built up.

Changes to a company’s financial position, credit profile or status can happen quickly. Monitoring gives Members an opportunity to identify developments that may justify reviewing a credit limit, changing terms or making further enquiries before increasing exposure.

The objective is not to stop granting credit. Credit is an important part of commercial growth. The objective is to make sure that the amount of credit being extended remains appropriate to the current level of risk.

Use CreditCare before increasing exposure

CPA’s CreditCare reports can help Members assess both new and existing customers before making important credit decisions.

A fresh report can be particularly valuable when:

  • A customer requests a larger credit limit
  • Orders increase significantly
  • Payment behaviour starts to deteriorate
  • A previously reliable customer asks for longer terms
  • Market conditions are placing pressure on the customer’s sector
  • A substantial new contract would materially increase your exposure

In a changing economic environment, credit decisions made several months ago may need to be reconsidered.

Do not allow overdue accounts to drift

One of the most important ways Members can reduce risk is simply to act promptly when an invoice becomes overdue.

The longer an account remains unpaid, the greater the opportunity for the customer’s financial position to deteriorate further.

If your normal internal credit-control process has been exhausted, pass the overdue account to CPA without unnecessary delay.

Early action gives CPA a better opportunity to obtain payment while the debtor is still trading and while funds may still be available. CPA’s approach is designed to encourage the customer to settle directly with the Member while preserving the commercial relationship wherever possible.

Waiting for another promise, another month-end or another payment run can sometimes feel like the easier option. But when a customer is already under financial pressure, delay can increase exposure.

Protect cashflow before distress becomes insolvency

The latest figures do not mean that every financially stressed company will fail. Many businesses will refinance, restructure costs or trade successfully through difficult conditions.

But they do reinforce the need for Members to remain vigilant.

Good credit management is about recognising changing risk early and responding proportionately.

Monitor important customers. Use CreditCare when circumstances change. Follow up overdue invoices consistently. And when an account needs CPA’s involvement, pass it to us promptly.

These simple disciplines can help reduce losses, protect cashflow and give your business the best possible opportunity to be paid before financial distress develops into something more serious.

For assistance with customer monitoring, CreditCare reports or an overdue account, contact CPA on 020 8846 0000, Monday to Friday, 9am to 5pm, or email info@cpa.co.uk.

Not a member yet? Call 020 8846 0000 or email PaidQuick@cpa.co.uk to find out how Credit Protection Association membership could protect your business.