Company insolvencies rise by 20% over a year

The number of businesses becoming insolvent rose by nearly 20% in the year to September. The retail sector was among the worst affected with nearly 400 outlets, including high profile casualties like House of Fraser, having to cease trading over the summer.

It’s thought high business rates, uncertainty over Brexit and tensions over international trade are among the main reasons for the increases.

Figures published by the Insolvency Service showed that 4,308 companies became insolvent in the third quarter of this year. That was a rise of 8.8% compared with the second quarter and a rise of 19.3% compared with the same period last year.

The number of compulsory liquidations in Q3 2018 fell by 2.5% on the previous quarter but increased by 11.1% compared to Q3 2017.

The construction industry had the highest number of insolvencies in the 12 months ending September 2018, followed by wholesale and retail.

The figures show that many businesses are still struggling amid the uncertainty of Brexit and the increasingly competitive market place. Unfortunately, a struggling business can have a devastating effect on its suppliers if it doesn’t pay their invoices. Many otherwise viable businesses fail because a customer becomes insolvent leaving invoices unpaid.

This problem could get worse following the Budget announcement by Chancellor Philip Hammond that he’ll make HMRC a preferred creditor in business insolvencies “to ensure that tax which has been collected on behalf of HMRC – is actually paid to HMRC”.

Businesses may wish to ensure they’re keeping a tight rein on credit control over the coming months. It’s easy to let unpaid invoices build up but failure to ensure prompt payment can lead to severe financial hardship if the debtor ceases trading.

Please contact Neil O’Callaghan if you would like more information about the issues raised in this article or any aspect of debt collection and credit control.