Half a million UK firms struggling

The number UK businesses fighting for survival has increased in the past year, according to insolvency firm Begbies Traynor.

A total of 554,554 firms — across all major sectors — were classed as being in ‘significant’ financial distress in the first quarter of 2024. This is up 30.8% compared with the same period last year.

Additionally, the more serious ‘critical’ financial distress leapt 20.1% compared to Q1 2023, with 40,174 firms affected. These are the businesses most at risk of collapse.

Despite a 15.4% fall in critical financial distress compared to Q4 2023, Begbies Traynor said that company insolvencies remain at “historically elevated levels” as servicing debt at higher interest rates takes its toll.

The report also noted that unless the economic backdrop improves, a large percentage of the businesses currently in significant financial distress are likely to progress towards critical financial distress and potential insolvency.

“Despite some optimism as we entered the new year, 2024 has so far been characterised by a continuation of the same pressures that plagued companies in the UK throughout 2023,” said Julie Palmer, partner at Begbies Traynor.

“Since the pandemic, hundreds of thousands of UK businesses depleted their financial reserves and loaded their balance sheets with increasingly unaffordable debt which for many may simply be too great to bear.”

Palmer added that many companies will be “pinning their hopes” on interest rate cuts later this year.

Insolvencies expected to rise as thousands of firms struggle

Thousands of businesses in the UK are at risk of collapse, according to insolvency firm Begbies Traynor.

The number of companies rated as being in “critical financial distress” in the final quarter of 2022 jumped by more than a third (36%) compared to the same period a year ago, and was up 10% on the previous quarter.

It’s the sixth consecutive quarter to show a rise in businesses in critical distress.

The Red Flag alert report also found that there are 610,405 companies across the UK rated as being in “significant financial distress”, 4% higher than a year ago.

Businesses are struggling at an increasing rate due to a combination of legacy pandemic related debt, high inflation and greater pressure on consumers who are reining in their spending.

“We came into 2022 hopeful that the pandemic was fully behind us and better times were ahead, only for Russia’s invasion of Ukraine to unsettle the global economy, leading to spiralling inflation and soaring energy bills and laying the foundations for what looks like a global recession,” said Julie Palmer, partner at Begbies Traynor.

“In the UK, in particular, strikes are just piling on the pressure as staff struggle to get to work and customers stay away.”

Bosses say they are having trouble “digging deep enough” to carry on, Palmer explained.

“Although we are — hopefully — about to pass the peak of inflation and the UK looks to have avoided recession at the end of last year, the strain is very clearly showing on businesses, as insolvency rates accelerate,” added Ric Traynor, executive chairman of Begbies Traynor.

“Interest rate hikes look set to continue into Q2 2023 placing further strain on the finances of both businesses and consumers. This, combined with a far less generous business energy support scheme and legacy Covid debts, do not bode well for many SMEs, and I fear that failure rates will continue to rise well into 2024.”

70% of Britons Have Debt Problems, Say Co-Op

Statistics have shown that 70% of Britons have experienced a debt or financial problem. This was shown by research conducted by the Co-Operative Bank.

If you have ever found yourself in a financial mess, more debts than money to pay them, struggling to repaying a loan, or had a collector phone you to ask why you haven’t paid, or worse yet, had a vehicle repossessed, or even worse a property repossessed or bailiffs sent out to your home??

If you have not, then you probably know someone who has, even if they have not disclosed this to you.

Here are a few more stats you may find interesting (based on 4th Quarter 2011 trends):

  • 318 people are declared insolvent or bankrupt every day.
  • 1,473 CCJ’s or County Court Judgments are issued everyday.
  • 93 properties were repossessed everyday.
  • Average household debt in the UK, not counting mortgages is £7,975.

So each of us on average, owes almost £8K in debt.

And many of us, for many reasons, struggle to repay these debts/loans.  We may struggle due to losing our jobs, or it may be through poor money management, or simply being overextended by living beyond our means.

There is a whole business, industry to help you do this.

There are companies and charities set-up, founded, bringing in profits, hiring people, creating jobs, etc, all to help people get out of debt.

This all makes up the debt industry.  An industry and business, just to help people who are in debt.

Many years ago being in debt was not only stressful due to owing money, but it also was a crime.

We all have probably heard about debtor’s prisons, where if you were insolvent or could not pay your debts, you were tossed into prison for a period of time to learn the errors of your ways.

This really makes no sense as while you are imprisoned there is no way you would ever be able to repay anyone.

But that is what they would do.

The Marshalsea prison from the 1300’s until the 1800’s it housed men who had committed or should I say were accused, of various crimes, including London’s debtors.

Supposedly in the mid 1600’s there were 10,000 people imprisoned for being in debt.

Later in the 1700’s, hanging was introduced for finding oneself in debt.

Then in 1869 a Bankruptcy Act was passed which abolished debtor’s prisons and going to prison for being in debt.

And lastly we have the Insolvency Act of 1986.

And so a whole new business or industry was born.

Currently there are hundreds of debt management companies/agencies out there, all wanting your debt business.

Jon from debtmanagement.co.uk who has been in assisting people with financial difficulties both in American and In the UK for the past 18 years has seen many changes over that time. “ What I am currently seeing is people who are struggling financially due to the rising cost of just getting up to live each day.  Petrol and home heating fuel, food, electricity have risen so much that people who previously could service the debt they had, now need the money for the debt payments, just to cover the basics of life.”

So what are your options if in debt and struggling and looking for help with a company in the “helping those in debt” business?  Let’s look at them.

  • Token Payment Arrangement:  This is where you make ‘token payments’ to your creditors each month of £1 or £5 to each account.
  • Debt Management Plan:  A DMP, is an informal arrangement similar to a token payment plan in that you make payments each month of what you can afford towards the debts, but these payments are a higher amount than just a few quid each month.
  • IVA/Individual Voluntary Arrangement:  This is a formal arrangement between you and your creditors where you make payments of what you can afford each month, this is a formal arrangement.
  • Insolvency: Bankruptcy or a Debt Relief Order depending on your circumstance.

So as you can see, it is not just the banking and the lending industry that is big business, but also the not being able to repay those loans, and being in debt as well.

This article was written by Nick Zapolski of www.debtmanagement.co.uk