We’re experiencing an upturn in the volume of formal insolvencies and we are starting to see the impact of this on regional businesses across the board.
Sadly recently we’ve seen high profile names affected here in the North East, with Stockton-based Cordell Group and Ashington-based A-Belco both going into administration with the loss of a significant number of jobs.
When a company enters formal insolvency, it not only impacts on that business itself, but also affects businesses from up and down the supply chain, with a ripple effect across many parts of the regional economy.
Last month, Begbies Traynor published a survey which found small businesses in the North East were feeling the strain with financial distress on the rise during Q1, a 6% rise in the first three months of 2017 compared to the same period in 2016. The Red Flag Alert data revealed that 5,700 of North East SMEs, compared with 5,360 last year, experienced significant financial distress. Larger businesses undergoing financial distress remained steady, up from 346 to 364 year on year.
Labour figures released to the Federation of Small Businesses in April showed that 1,345 North East firms failed due to late payments, with more than 8,000 struggling to pay staff on time and 22,000 paying their own suppliers late. In total, SMEs in the North East were owed an estimated £707million in late payments and had written off £156million as bad debt.
This is borne out by what we have seen, with an increase in the number of people we’ve been speaking to and what we’ve been hearing through our networks.
Against the backdrop of political uncertainty, the true impact of Brexit and general economic conditions, businesses are experiencing difficulties. We’re not going to see a sudden avalanche of insolvency, but the trend is towards formal insolvency and it’s something which all businesses should be aware of.
Ironically, when companies seek legal advice it is often too late to make a real difference to the eventual outcome. Businesses need to insure themselves against the risk of insolvency in the supply chain and seek advice early.
The upturn in formal insolvencies serves as a warning for businesses, especially where there are more concentrated pressures and risk of exposure – such as those operating in the oil and gas, construction and engineering, or hospitality and leisure sectors.
Many businesses have never experienced the true impact of a significant bad debt but the consequences can range from causing real damage to profitability or, at worst, sinking the entire company.
Once a business discovers a bad debt, the owners are fighting a rear guard battle. They need to be proactive, take charge and manage the risks at an early stage using qualified specialist advisers. Legal advisers and credit controllers are key to a business’s success in dealing with – and surviving – bad debt.
