Are Companies Weathering the Insolvency Storm?

Just how much weathering of storms can companies take? With the combined effects of the pandemic, the cost of living crisis and the overall state of global finances, there’s no wonder there’s been so much of a squeeze and companies have had to rethink their positions.

The pandemic was certainly one of the most divisive events in living memory. From one perspective companies were either forced to close, but for some the chance to diversify means that a shift in how delivery was managed and business was done means they are now doing business in a very different way.

That said, many businesses were devastated by closure and have still not managed to reach levels of success that they were perhaps enjoying before.

So what’s the issue now?

There’s been talk of an ‘insolvency tsunami’ for a while now.

Cash flow shows no signs of improvement and inflation continues to surge. This is being compounded by the recent cost of living crisis, high inflation, supply chain issues and soaring energy prices. Therefore it is becoming crucial for those with debt owed to seek advice at the earliest opportunity to get customer invoices paid quicker.

According to recent figures released by the FSB, one in ten businesses (8%) say late payment is now threatening the viability of their business.

Close to one in three (30%) has seen late payment of invoices increase over the last three months.

It also looks like the cash-flow squeeze is starting to translate into formal insolvency procedures. June 2022 saw the total number of company insolvencies rise by 15% compared to pre-pandemic figures for 2019 and 40% compared to June 2021. This increase has been driven by Creditors’ Voluntary Liquidations, which were 44% higher than pre-pandemic levels.*

Are there any other threats on the horizon?

It may seem like scaremongering but the reality is that tens of thousands of companies could well crash out of business with millions of workers made jobless because of high energy prices.

Unprecedented numbers of otherwise healthy businesses will possibly fail or be forced to lay off staff to avoid going out of business according to a report by Red Flag Alert, a fellow consultancy.

Of a total of 355,000 companies with a turnover of more than £1m designated as high-energy users, 75,972 are at risk of insolvency due to energy price hikes.

This is also in a playing field where companies are already struggling to recruit and to keep staff. This latest blow will undoubtedly exacerbate the problem from the other end, forcing companies to keep more experienced employees and reward them over less valuable members of their teams.

Need help?

It’s a rough period up ahead, so having a handle on where to turn next can be daunting. Seeking help and advice about business debt or recovery? Talk to one of the team for a free consultation today.