More firms 'in distress' amid slowest growth rate for 4 years

The demise of Carillion PLC may have grabbed the business headlines recently, but there was evidence prior to this event, that there’s been a rise in the number of firms experiencing financial difficulties as the rate of business growth slows to its lowest level in four years.

Research by the insolvency and restructuring trade body, R3, found that the number of companies reporting one or more signs of growth fell to 53% in September 2017, down from 62% in September 2016. It’s the lowest figure since July 2013.

Meanwhile, firms experiencing one or more signs of distress jumped to 25%, up from 21% in September 2016.

Adrian Hyde, President of R3 said: “There’s been a very firm increase in distress levels over the last 18 months, alongside a drop in growth. Businesses have moved on from record high growth levels and record low distress levels, and it looks like a new phase of the economic cycle has started.

“With sales volumes falling for a larger number of companies, and with more firms reaching the limit of their financial facilities, the economic picture is getting murkier. For a lot of companies existing on the edge, just one shock – such as a rise in the cost of borrowing, the failure of a major supplier or customer, or a fall in consumer confidence – could be enough to push them into insolvency.

“Many companies have seen their fixed costs rise over the past year, whether due to higher business rates, an increase in the National Minimum Wage, inflation’s upward trajectory, higher fuel prices, or the fall in the pound pushing up import prices. Meanwhile the economy’s growth has not been rapid enough to offset these greater outlays, leaving some firms in a precarious position.”

The figures highlight the need for businesses to keep a tight rein on finances as other companies start to feel the strain.

One early warning sign that a business may be in trouble is the late payment of invoices. If they become insolvent and fail to pay, they can jeopardise the viability of otherwise successful enterprises.

Firms need to be ready and willing to take early action when necessary to ensure prompt payment of invoices to protect their own future. Quite often, a letter from a solicitor is enough to ensure payment; if not, there are other legal avenues available up to and including court action.

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

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