Number of businesses in financial distress up 24%

The number of businesses facing critical levels of financial distress was 24% higher in the last quarter of 2011 than in same period in 2010.

The statistics are contained in the Red Flag Alert compiled by Begbies Traynor.

The Professional Services sector was the worst affected showing a rise of 61%. Travel and Tourism was 56% higher and Property Services showed a 30% increase.

The Executive Chairman of Begbies Traynor, Ric Traynor, said: “These figures certainly follow the typical cycle of recession; previous quarters showed growing numbers of ‘significant’ distress, but this is now crystallising into ‘critical’ levels – particularly within the automotive, construction, property, professional services and general retailing sectors.

“Trends evident in the Red Flag Alert demonstrate that we are likely to be approaching a crucial period for businesses large and small. Escalating levels of distress indicate we may be getting close to the bottom of the economic cycle, where so called ‘zombie” businesses, which are inherently insolvent, but have benefited from extensive support measures such as HMRC’s ‘Time to Pay’ scheme eventually fail.”

The figures and the forecasts emphasise the need for firms to be extra vigilant over credit control and debt collection. Taking early action when invoices become overdue can often be the difference between being paid or not by a business close to insolvency.

Please contact Neil O’Callaghan if you would like more information about credit control and debt collection.