British companies owe £53bn ~ Debt Managements and Consolidation

Wednesday 26th January 2011

Begbies Traynor Group PLC – the business consultancy firm – have published their Red Flag Report for the fourth quarter of 2010 which reveals that UK businesses with ‘critical’ problems owe more than £52.7bn to creditors, suppliers and service providers.

Almost 148,000 UK companies are facing ‘significant’ or ‘critical’ financial difficulties, which is a 24 per cent increase compared to the previous quarter, while more than 61,000 struggling companies are exposed to forthcoming public sector spending.Companies with ‘significant’ problems are those with either a court action against them and/or insolvent or out of date accounts. Firms with ‘critical’ problems are those with county court judgements totalling £5,000 or more and/or wind-up petition-related actions.Ric Traynor - Executive Chairman of Begbies Traynor Group - said: “Today’s figures show that UK businesses are demonstrating real signs of distress and that trade creditors are both losing patience with their debtors and in need of collecting cash into their own businesses. “Coming against a backdrop for the largest decline in house prices for a year, higher inflation, an accelerated decline in business confidence and higher unemployment forecast for 2011. These figures indicate the renewed challenges facing most businesses across most industries in 2011.”The report shows that the sectors which are most vulnerable to public sector cuts - construction, IT, recruitment and advertising – have seen a 24 per cent increase in financial distress during the fourth quarter of 2010. This can be expected to increase as cuts continue during 2011.Traynor said: “These figures demonstrate that the sectors most reliant on government spending are already feeling the impact of public sector cuts, confirming the financial effects of the recent contraction in the services and construction sectors.“With the full implementation of budget cuts only starting to show through in these figures, public sector exposed sectors are likely to face significant increases in the level of corporate failures over the course of 2011.”Carole Hughes, managing director of leading credit management and collections agency Daniels Silverman, commented: “We’re all aware that this year is looking particularly tough for SMEs (small and medium enterprises). To ensure that you are not on the receiving end of a company which is unable to honour its debts, act beforehand to ensure that your T&Cs are watertight before signing a new customer.“Our ‘top tips’ include: Always perform credit checks to ensure you know your customer; give your customer a credit limit and review this regularly; invoice promptly and double check details are accurate; phone your customers before payments are due to ensure there are no queries; send monthly statements and finally consider outsourcing late paying accounts to a reputable collections agency – you can write this in to your T&Cs before signing contracts.”Christina Weisz, a director of foreign exchange specialists, Currency Solutions, commented: “Sterling weakened against a basket of currencies before the GDP figure was announced and went off a cliff when it came out. The Q4 GDP figure is a massive blow to the Pound and will act as a dead-weight in the short term."Alongside weak growth, we now have the very real prospect that more money will be printed, which will further dilute Sterling. Stagflation is now a real and imminent threat. Although the extreme weather conditions would certainly have contributed to the shock performance of the economy in Q4, the real reasons for its continued stagnation are far more fundamental. "Consumer spending and demand have been decimated by rising unemployment, rising living costs and the prospect that rates could rise sooner rather than later as inflation runs out of control.”
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