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UK Insolvencies increase 33% in one month – but there is ‘light at end of tunnel’ | Personal Finance | Finance

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UK businesses are starting to wind down after a significant rise in company insolvencies last month.

Recent insolvency service data shows that there were 2,308 company bankruptcies in August, representing a 33.6 per cent increase compared to July.

Nicky Fisher, president of R3, the UK’s insolvency and restructuring trade body, said: “August’s corporate insolvency figures were their highest for the month in four years as a combination of long-term economic issues, director fatigue and creditor pressure increased companies into. bankruptcy process in an attempt to solve their financial problems or close their doors.”

Creditor voluntary liquidations are at an all-time high as an increasing number of directors choose to wind up their companies. Meanwhile, the number of compulsory liquidations reached their “highest” in August in four years as creditors continue to pursue money owed to them.

Ms Fisher said: “August’s administration figures were the highest monthly figure we have seen since January 2019, which shows that more and more businesses are at the point where they need specialist help to survive – and that a sale or they need business. liquidation may be their only options.

“The sad fact is that businesses are being hit from different angles – and these hits are affecting their bottom line. Cost inflation has been a problem for some time and although this is expected to ease it is still higher than many had predicted.”

James Burgess, head of commercial at Atradius UK, one of the UK’s largest trade credit and insolvency firms, said the firm’s own data shows a “significant” increase in claims for late or failed payments.

According to Atradius UK, the number of claims for late or failed payments reported to them in Quarter Two (Q2) of 2023 was 26 per cent higher than in the same period in 2022, and 165 per cent higher than in Q2 2021.

Mr Burgess said this means “businesses are not out of the woods yet.” However, he noted: “There is light at the end of the tunnel with August retail sales up 4.1 per cent.

“The last August bank holiday together with the summer spending boom could prevent these businesses from the dangers of insolvency but companies must be vigilant and acknowledge the risks of insolvency.”

Mr Burgess suggested that if interest rates were to rise, businesses could face challenges. However, if interest rates fall below four percent, businesses should be able to “come out the other side”.

He said: “We at Atradius predict that this is possible with current interest rate trends. Although slowly, interest rates are decreasing each month, suggesting that they will eventually fall to a point that will benefit businesses and lead to a triple green.”

“One of the main reasons businesses file for insolvency is the collapse of supply chains, and this will have major implications for businesses during a recession. If a customer fails to pay on time – or at all – the domino effect on supplier businesses is widespread, especially when cash is tight.”

However, businesses “never” go into insolvency overnight, and Mr Burgess said there are some “warning” signs suppliers should look out for beyond just late payments. These include taking advantage of full lines of credit, changing banks, or high turnover among senior managers.

Mr Burgess said: “It is vital for businesses to have robust and up-to-date financial insight and forecasts and at a time of great volatility, this can be the deciding factor in whether a company succeeds or not. he or she will succeed.”

Company insolvencies are on the rise worldwide, with nations such as Germany and France particularly suffering from slow or stagnant economic growth.

Ms Fisher added: “Our message to directors is simple: be aware of signs that your business may be in financial trouble and seek advice as soon as they present themselves.

“If you are having difficulties paying wages, staff or suppliers, if you are running out of stock, or if you are concerned about your business and its finances, now is the time to speak to a qualified adviser.”

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