Insolvency debt continues to rise
New research has found that the average value of insolvent debt increased by 7% with construction seeing some of the largest rises in bad debt.
The Write Off Report from Red Flag Alert, shows a decline in the number of company insolvencies in 2020. However it shows the average debt per company going out of business has increased by 7%. On average, insolvent businesses now leave behind £205,000 in unpaid invoices. In the construction sector write offs increased by £31million to £283million.
The ONS, Business Impacts of COVID-19 survey, period 16 November to 29 November 2020, showed 9.7% of construction companies had ceased trading and did not intend to restart in the next two weeks.
Managing Director of Red Flag Alert, Mark Halstead, said: “Insolvencies vary significantly in value and it’s the ripple-effect that can prove so damaging, as it literally sucks serious amounts of revenue out of supply chains. Earlier this year we reviewed the administration of construction company Sanderson Contracts, which went into administration leaving debts of £10.3m and 17 suppliers at serious risk of failure.”
“The real concern for some of the sectors that have seen significant rises in written off debt is that separate Government ONS data identifies a trend of businesses pausing trading, with no immediate sign of recommencing work. The impact of these failing companies won’t be seen until early next year, when a number of other factors come into play and will make it even more challenging for struggling companies to survive.
“Government COVID-19 support is shifting from grants and loans, and measures protecting businesses from insolvencies to rebuilding the economy. At the same time, the completion of the Brexit transition draws increasingly closer, bringing new operational complexities and costs.
“Written off debt will grow significantly and repeatedly in the next six to 12 months. Companies need to ensure they are protecting themselves against an ever increasing risk of customers defaulting on outstanding payments.”
