Stubbornly high inflation and weak consumer confidence continues to present huge challenges for British businesses. This reality is especially relevant to the Construction and Real Estate markets where its been reported that almost 30% of all companies in that sector are facing critical financial distress.
One in 191 active companies (at a rate of 52.4 per 10,000 active companies) entered insolvent liquidation between 1 October 2022 and 30 September 2023. This was an increase from the 46.9 per 10,000 active companies that entered liquidation in the 12 months ending 30 September 2022.
After seasonal adjustment, the number of company insolvencies in Q3 2023 was 2% lower than in Q2 2023, but 10% higher than in Q3 2022. The last two quarters saw the highest quarterly insolvency numbers since Q2 2009 and the highest numbers of CVLs since the start of the series in 1960. The numbers of compulsory liquidations and administrations increased to levels last seen before the coronavirus (COVID-19) pandemic.
While the Insolvency Statistics are backward looking, the “Red Flag Alert” research published by Begbies Traynor Group looks forward by looking at the number of companies currently in financial distress.
In the latest report, released in November 2023, shows the number of companies in “critical financial distress” continued to rise this quarter by 25% to 37,722 in Q3 2023. Serious concerns regarding the outlook for the Construction and Real Estate & Property Services sectors as critical financial distress jumps 46% and 38% respectively on Q2. Critical financial distress also rose considerably in the retail sector, with Food & Drug Retailers up 33% and General Retailers up 14%, compared to the previous quarter.
Julie Palmer, Partner at Begbies Traynor, said: “Tens of thousands of British companies are now in financial dire straits now that the era of cheap money is firmly behind us. “Businesses that had loaded up on debt at rock-bottom rates, and were only able to cling on during the pandemic thanks to Government support, must now deal with a financial reality check as higher interest rates hit working capital for the foreseeable future.
With companies now getting hit with losses and more insolvencies looming for the new year, we have seen an increase in interest in credit insurance as business owners are eager to safeguard their companies from further hits. Businesses that already have credit insurance in place are reaping the rewards of their protection, with ABI reporting that trade credit insurance claims are up 54% on the first half of the previous year.
We are also seeing an increase in clients utilizing the intelligence they receive from their insurance policies to help get ahead of claims and make informed decisions on new customers to mitigate potential future claims.
Of course, as a result of the increase in claims, the market is beginning to tighten and so our advice is that you’ve got to be in it, to keep it - If you are currently uninsured but are considering protecting your business through credit insurance, you will want to move on this before your business suffers avoidable losses as this could restrict your options at a later date.
If you already have Trade Credit insurance in place, you will continue to have support to ride out the impending swell of insolvencies. Alternatively, if you are considering taking out Credit insurance, we advise getting this in place as soon as you can to get ahead of the insolvencies and avoid the predicted rate increases next year.