Insolvencies predicted to rise “significantly”
Debt recovery specialists have warned that insolvencies are set to rise sharply as government support initiatives come to an end.
Companies in financial distress as a result of the pandemic have been protected from creditor action since June 2020 under the terms of the Corporate Insolvency and Governance Act 2020. However, from 1 October 2021, these measures were tapered off, meaning that winding-up notices can now be issued for any debt over £10,000.
Lynne Darcey Quigley, chief executive and founder of debt recovery firm Darcey Quigley & Co, has warned that as the bottleneck of business-to-business debt starts to take effect, insolvency rates are set to “significantly increase”.
“There is no doubt that businesses needed support and protection during the pandemic and the subsequent lockdowns, however some businesses are using these measures to avoid paying invoices on time,” said Darcey Quigley.
Read more: P2P investors urge FCA to hire “very different” kind of chair
“This has created a backlog of corporate debt, and has created a ripple effect throughout supply chains as late payers impact cash flow, causing further businesses to pay late as a result.”
According to the latest government data, there were 56 per cent more insolvencies in September 2021 than there were in September 2020.
Darcey Quigley said that these figures are “just a prelude to the massive growth in insolvency yet to come as winding-up notices start to be handed out”.
“With increased levels of debt and the furlough scheme ending, this combination of events could prove extremely challenging to UK businesses,” she added.
Read more: Nucleus flags concerns as rising costs threaten SME growth
“Many businesses are still avoiding paying, as they can effectively have an infinite amount of debt as long as no debt to a single company goes beyond £10,000. We are therefore yet to see late payments fully translate into insolvency, but September’s figures show it is already on the rise.
“Make no mistake, the time is now to focus on effective credit management, or to get an expert on your side who can help chase late or bad payers without affecting customer and client relationships.”
Read more: Autumn Budget: Treasury extends RLS with major changes