Unrecoverable Debt Grows – Our Insolvency Practitioners Comment

Debt Owed to UK Businesses Increases Significantly in quarter one 2018

According to a recent report by CreditSafe, the amount of unrecoverable debt owed to UK businesses was £580 million higher in Q1 2018 versus Q4 2017. This is a significant increase, and one which appears to have been partially driven by the growth in the numbers of businesses collapsing in recent months, especially the high profile ones such as Carillion and Toys R Us. Tom Gardiner, one of our Insolvency Practitioners looks in more detail at the figures and comments that although these high profile corporate collapses have damaged business confidence, it is too early to say whether these figures are an on-going trend.

Tom also suggests, however, that swift action by businesses facing cash flow issues, or those that are worried about cash flow especially in the aftermath of these big corporate failures, offers the best chance for turnaround and survival.

The CreditSafe Findings

Firstly, let’s look at the data presented by CreditSafe. This shows that unrecoverable, or bad debt (that is written off debt owed to businesses) reached £738.7m in the first quarter of 2018, compared to a figure of £157.9m (a 12-month low) in Q4 2017, an increase of 367%. At the same time, the average value of this debt also increased significantly, by 365.9%, over the last 12 months to a high of £929,875 per outstanding payment.

These figures represent significant deteriorations in a short space of time.

The knock-on effect of increasing unrecoverable debt

The quarterly CreditSafe report  analyses financial data across 11 UK business sectors and is considered to be a good indicator of business health.  The increase in unrecoverable debt has had significant repercussions, with, perhaps most importantly, the data showing that the number of companies that had failed over the last three months had risen by 28.3% to 4,567.

At the same time, UK sales dropped by 23.0% to £7.38 trillion in Q1 2018, whilst the number of County Court Judgments (CCJs) rose by 23.0% to 18,781, over the same period. Inevitably, figures like this will keep insolvency practitioners busy. However, the figures have been driven by a small number of large and high profile insolvencies, for example:

The collapse of Carillion, in particular, had a marked effect on the construction industry, which saw a fall in sales of 6.2%, a rise in debt owed to the sector of £4.3m, a 73.3% increase in company failures and 484 more CCJs. This demonstrated the significant impact that a collapse of the scale of Carillion can have in the short-term on just one sector.

Insolvency Practitioner, Tom Gardiner, Comments

Tom Gardiner is a Licensed Insolvency Practitioner, and is head of the Antony Batty office in Brentwood Essex. Commenting on the CreditSafe findings, he said:

“Recent high profile corporate collapses and scandals have been costly and appear to have harmed confidence in UK business.  We can see from the CreditSafe analysis that whilst 2017 had seen a fourth-quarter rise in sales and a fall in bad debt, the first 3 months of 2018 has seen more than 1,000 companies fail, a rise of over a quarter, driven by major collapses such as Carillion.

Our team of insolvency specialists are seeing similar financial difficulties and challenges in many industry sectors, certainly in the short term. It’s a waiting game to see what the mid to long-term future will deliver.”

Our Insolvency Practitioners Advice – Take Action Now if Cash Flow is Looking Problematical

This article has focused on unrecoverable debt and the impact it can have on businesses. However,  late payment is also just as dangerous and puts businesses at risk of insolvency. A successful business can very rapidly be put under severe cash flow pressure due to late payments, and cash flow problems can very quickly lead to the stress and strain of pre-insolvency. See our insolvency and restructuring guide for more.

Our advice if you are running a business that is facing insolvency, especially if driven by cash flow problems, is to take swift action. As insolvency practitioners, our focus is just as much on helping businesses take the action they need to turn things around as it is on implementing formal insolvency proceedings after a business has already failed. If at all possible, preventing insolvency is our focus.

Talk to our insolvency practitioners in London, Brentwood, Salisbury or the Cotswolds for help and advice on how to address cash flow problems if your business is at risk because of them. Contact us or call us on 0208 088 0633 for a FREE initial discussion.