UK businesses in significant financial distress.

9th May 2019.

New research from Begbies Traynor, the UK’s leading independent insolvency firm, reveals there are now 484,000 UK businesses in significant financial distress.

This follows from warnings yesterday from KPMG re zombie firms

The property sector was found to be particularly affected, giving rise to concerns that the UK could suffer a broader economic slowdown.

The Red Flag Alert data for Q1 2019, which monitors the financial health of UK companies, found that 16% of all UK businesses were experiencing ‘significant’ financial distress at the end of March 2019, while the number of businesses in critical distress during the same period – often a precursor to formal insolvency – rose by 17% year-on-year.

Property Sector

For the second quarter running the hardest hit sector was property, which saw a 13% year-on-year increase in the number of companies in significant financial distress rising to 48,182 (Q1 2019) from 42,512 (Q1 2018).

Within this sector, companies involved in buying, selling and letting took much of the hit with a 16% increase in significant distress to 36,018 (Q1 2019) compared to the same period last year – 30,947 (Q1 2018).

Construction

Construction, often considered the ‘bellweather’ of the UK economy, has also suffered.

Compared to the same quarter last year there are now 10% more companies involved in the development of building projects in significant financial distress – 13,018 (Q1 2019) vs 11,813 (Q1 2018).

This negative trend has also affected other construction sub sectors with a 5% increase in significant financial distress for those companies involved in the construction of commercial buildings 2,451 (Q1 2019) vs 2,328 (Q1 2018).

This trend is also replicated in companies involved in the construction of domestic buildings, where significant financial distress has also increased by 5% to 6,209 (Q1 2019) from 5,919 (Q1 2018).

Financial Services

The research also revealed increasing levels of significant distress within the financial services sector, with 12,728 businesses affected, an increase of 5% compared to Q1 2018.

The sector has been particularly affected by the uncertainty surrounding Brexit with some activity stalling pending clarity on the final outcome.

Once a final decision has been agreed, then stability should return as the fundamentals of this sector remain reasonably good.

Hospitality

Deterioration in financial performance has also been felt by the Hotels & Accommodation and Leisure & Cultural sectors with a 9% and 4% respective year-on-year increase of businesses in significant financial distress.

Both sectors rely heavily on migrant workers and with net EU migration to the UK falling to its lowest level since 2009, these businesses are having to deal with a perfect storm of a reduced labour supply and increasing costs due to the recent 5% increase in the national living wage.

Begbies Traynor

Julie Palmer, Partner at Begbies Traynor, said “Many UK businesses are currently in limbo and deferring major investment decisions. This combined with consumers holding back on big ticket purchases has resulted in increasing significant distress across many sectors.”

“This trend is reflected in our latest Red Flag research which clearly shows that capital intensive sectors – such as construction and property – are suffering as both business and consumers have taken a cautious approach and limited their exposure. This is bad news for the economy as construction accounts for 17% of all UK businesses, employs almost 2.5m people and contributes 6% of the UK economic output.”

“Worryingly this data shows that this economic malaise is spreading to the UK’s dominant services sector and does need to be stopped in its tracks by a combination of political certainty and a commitment to support UK business, particularly SME’s which are the “engine room” of the UK economy.”

Ric Traynor, Executive Chairman of Begbies Traynor Group said “We have heard from businesses that Brexit uncertainty has been a hindrance to business growth and investment. There has already been a number of high-profile firms announcing their decision to invest in other countries, which not only impacts regional economies, but also the SME supply chain.”

“However, the combination of faltering European economies and a potential trade war between the US and Europe could have a far wider impact on UK businesses than our domestic issues.”

“Yet, with employment currently a record high of 32.7 million and GDP still growing, the UK’s economic foundations remain strong. If the government is able to right the ship over the next few months, providing greater certainty to businesses and regaining consumer confidence, then there is still time to head to calmer waters and avoid a storm.”

Do you supply goods and services on credit?

If so, the above news will be of concern.

When a company in financial distress eventually fails, it usually means its creditors, those who supplied it with goods and services on credit will lose out.

However, 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.

However if you are going to continue to supply to businesses on credit, CPA can help you identify those in distress and minimise their risk.

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 your 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.

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 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 cash-flow, 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 cashflow.

Don’t let your bankers control you,  contact CPA today.

Read our blog here on how to crack down on the late payment culture.

Read our blog here on how to give late payers the slap they need.

visit our late payment compensation page

See our full blog and FAQ on late payment compensation

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