Business insolvencies set to rise due to cash flow pressure

Credit insurer Allianz Trade recently predicted that UK businesses would increase by 37% this year.  It was noted that sectors including construction, utilities and business services are most at risk and currently leading a resurgence in company insolvencies.

In April 2022 the number of registered company insolvencies was 1,991.  This is more than double the number registered in the same month in the previous year (925 in April 2021), and 39% higher than the number registered pre-pandemic (1,429 in April 2019).  It is perhaps telling that Creditors Voluntary Liquidations (CVLs) were 74% higher than April 2019.

Although an increase in corporate insolvencies had been anticipated, there is also a significant increase on pre-pandemic numbers.  Various factors, such as rising inflation, surging energy prices, supply chain issues and the ongoing conflict in Ukraine are all contributing factors. 

UK businesses had benefited from support packages through the worst of the pandemic, but with payments now due in relation to Bounce Back Loans and CBILS Loans, these recent and unforeseen challenges mean that for many businesses, cash flow is under pressure.

When to speak to an Insolvency Practitioner

If your company is struggling, the most important thing to do is to seek professional advice.

A Licensed Insolvency Practitioner can provide practical advice when cash flow issues emerge and help with practical solutions to address them.  A Licensed Insolvency Practitioner is also best placed to provide advice on the formal options which may be available. 

If the challenges facing the company are too significant, and the business is no longer viable, an Insolvency Practitioner can also assist with company closure.    

Managing cash flow pressure

There are some common causes of cash flow difficulties and taking steps to deal with them is important.  So, what can be done to improve cash flow?

• Implement cost cutting measures

Cutting non-essential costs is a good place to start.  There will always be costs which are fixed or cannot reasonably be cut without having a negative impact elsewhere in the business, but most businesses could identify sensible savings if needed. 

• Prepare cash flow forecasts

It might seem like an onerous task, but cash flow forecasting is essential.  It allows you to budget for known expenses and to plan ahead if any additional facility is likely to be required.

• Reducing credit terms

Unpaid invoices have a negative effect on any business.  Consider reducing the credit terms offered to customers, if possible.  Where payments from customers exceed the agreed terms, then you may want to consider charging interest on late payments.

• Reviewing funding

There are many ways to get additional funding, ranging from traditional bank loans, factoring, or peer-to-peer lending. In addition, The Recovery Loan Scheme is currently open to businesses until 30 June 2022 (subject to certain conditions).  You can find more information on this scheme, here.  Always consider that some of these options may require a personal commitment from you in the form of a personal guarantee.

Company closure

Sadly, in some cases, there is no viable future, and you must consider the available options.

Voluntary liquidation is a formal insolvency procedure formally known as Creditors Voluntary Liquidation (CVL).  The assets of the company vest in the liquidation estate. As a director, you have the duty to provide information on all company assets, and the Liquidator will dispose of them for the benefit of creditors.  An independent agent will usually be engaged to ensure that the best possible realisations are achieved.

You can read more about company closure, here.

Help from a Licenced Insolvency Practitioner

Keywood Group is a firm of Licenced Insolvency Practitioners with offices in Birmingham and London.  Our team has over 20 years’ experience in advising businesses on their options and dealing with company closure.  Our experienced team will work with you to assess the options available and guide you through the process.  If you would like any further information, please contact us for a no obligation chat.