Getting your business' house in order as insolvencies boom

06 October 2022 Consultancy.uk 3 min. read
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Figures published by the Insolvency Service reveal corporate insolvency numbers rose in August when compared to the previous month and have soared compared to pre-pandemic levels. Lynne Darcey Quigley, Founder and CEO of Know-it, explains what firms with concerns about their finances can do to try and avoid contributing to the statistical surge. 

The August 2022 insolvency figures paint a bleak picture of the state of the UK commercial landscape. Compared to pre-pandemic levels, company insolvencies increased by 42% in England and Wales.

There has been a tremendous increase in the number of company insolvencies due to Creditors' Voluntary Liquidations (CVLs). They have risen by 33% since August 2021 and by 73% since August 2019. We’re seeing the same trend in Scotland where company insolvencies increased 18% from August 2021 and were 33% higher than in August 2019, before the pandemic.

Lynne Darcey, CEO, Know-it

What the current economic situation looks like

Energy costs are causing businesses to cut back, inflation is at a 40-year high and the cost-of-living squeeze is impeding consumer spending across Europe, sparking recession fears. 

This quarter will be rocky, with little disposable cash available, and the continued increase in company insolvencies that we are seeing month on month not only indicates that businesses are having trouble surviving, but many are struggling to find the cash necessary to pay their outstanding invoices.

For thousands of businesses in the UK, we have reached the make-or-break point regarding their credit control. At Know-it, we have been banging the drum all year about the need to implement more robust credit control processes.

Credit cycles are extremely delicate because so many businesses are at risk of failing. Regardless of whether you think your business is close to collapse, your customers might be. We’re already seeing many businesses failing to pay outstanding invoices and the huge swathe of company insolvencies we’re seeing each month poses a serious threat to businesses across the country and whether their outstanding invoices are paid on time.

Obtain a company credit report

Whether you have taken orders from a repeat customer or not, credit checking each of the companies you do business with is critical and the very first step in any credit control process.

The key to understanding your customers' creditworthiness is to pull their company's credit report, which can help you assess their financial standing and recent payment history.

Furthermore, a company credit report will provide you with a recommended credit limit for your customers which lets you know suitable credit terms to offer while minimising the risk of late or non-payment. It is equally important to regularly monitor your customers’ credit reports as they can change month to month.

Implementing a robust credit control process doesn’t need to be complicated. A simple process can be followed by credit checking and monitoring companies you do business with, being pro-active chasing payment when invoices become overdue and having a plan in place to recover unpaid invoices.

In addition to being a sobering reminder to the government, these figures reflect the toll sustained economic turbulence is taking on businesses in England, Scotland and Wales as we head into the winter months. Any business with concerns about their finances is urged to seek help immediately. Having your concerns about business finances can be difficult, but the sooner you seek advice, the more options you will have at your disposal and the more time you will have to make an informed decision that is beneficial to your business.