UK Insolvencies Rise. Are your collections strategies recession ready?

The majority (89%) of insolvencies are Creditors’ Voluntary Liquidations (CVLs). CVLs are the most common company insolvency in England and Wales and are typically used by small businesses going insolvent. CVL’s are now higher than pre-pandemic levels.

An increase in insolvency figures was expected from March 2022 as the government-imposed restrictions on creditor remedies during the pandemic period came to an end. The success of these support measures had meant that there had been significant dip in the number of insolvencies during the support period. Once the measures came to end a period of catch-up was inevitable.

However, these Q2 figures appear to be no blip. In August the number of companies in England and Wales declared insolvent jumped by 43% with 1,933 insolvencies. This was 42% above the level in August 2019, before the COVID-19 pandemic hit. For the first time since the pandemic there was a month on month increase in the administration and CVA figures (43% for administrations and 160% for CVAs). This suggests that more live businesses are reaching for insolvency and restructuring protection.

The ONS Business Insights and Conditions Survey (BICS) of UK business in August found 1 in 10 were reporting a moderate to high risk of insolvency. Several factors have played a role in the recent rise in insolvencies and the pessimistic outlook from businesses. Persistently high energy prices and the impact of high inflation on raw material costs and managing debt obligations were all highlighted in the BICS – as were the ongoing supply chain issues.

As the Bank of England raise interest rates to combat inflation and Europe desperately tries to free itself from its dependency of Russian gas, these are factors which will continue to impact UK business health for the foreseeable future. With the UK widely considered to be entering recession this is a difficult economic climate for businesses to survive let alone thrive and business insolvencies are likely to continue to rise throughout 2022 and indeed into 2023.

For credit and collections teams, this is economic environment which demands highly proactive credit-control and debt recovery. Are your collections strategies recession ready?  It is critical to understand the financial situation of the customers to identify credit risks and opportunities to maintain cashflow. Ensuring your invoice is in the front of the queue to be paid will be key. With a higher level of insolvency expected, you certainly don’t want to be an unsecured creditor of a business in administration with little hope of recovering what is owed.

In an economic downturn, especially one characterised by high level inflation and soaring interest rates, all businesses are going to look to amortise their cash on the balance sheet and self-finance. They will also look to hold onto their money where possible for as long as possible. This is an economic environment where liquidity will be key to survival.  For all business this is the time for fast and effective action to get your cash collected and shore up your finances for the tough times ahead.