Recent Red Flag Alert research from Begbies Traynor reveals that the number of businesses in ’significant’ financial distress at the end of Q1 2019 reached 484,000 – which is 14% of all economically active businesses in the UK. The number of businesses in ‘critical’ financial distress reached a massive 17% for the same period. The property sector was particularly affected which causes concern that the UK could suffer a broader economic slowdown.
The number of companies in the property sector in significant financial distress rose by 13% y-o-y from 42,512 in Q1 2018 to 48,182 in Q1 2019. Companies involved in buying, selling and letting were particularly affected. The Construction sector has also suffered with an additional 10% of companies in significant distress in Q1 2019 than in Q1 2018. This has also affected construction sub sectors with a 5% increase for companies involved in the construction of commercial and domestic buildings.
The Hotels and Accommodation sector has been hit too with a 9% y-o-y increase in businesses in significant financial distress and the Leisure and Cultural sector has seen a 4% rise. EU migration to the UK has fallen to its lowest level since 2009 and as these sectors rely heavily on migrant workers, businesses are having to operate with a reduced labour supply and rising costs owing to the 5% increase in the national living wage.
The financial sector has been has also had a hard time with 12,728 business affected which is an increase of 5% compared to Q1 2018. The uncertain economic climate, in particular the uncertainty of Brexit, is proving the biggest challenge but stability is expected to return once this has been resolved.
When a business is in financial distress they will most likely struggle to pay their debts on time or at all. A trade credit insurance policy covers debts arising from both the insolvency of a customer and payment default. Many policies will also include collections services to assist with slow paying customers. If you would like to find out more about how a credit insurance policy can assist your business, contact us or fill in our request a quote form.