The quarterly 'Red Flag Alert' from the insolvency experts Begbies Traynor shows that 147,836 UK companies have 'significant' or 'critical' financial problems.Coupled with this they found that actions by trade creditors are it seems on the increase.
The report aims to monitor the 'early warning signs of company distress' showed a 20% increase in firms suffering from these significant or critical financial problems over just the previous quarter, more than is normally the case at the festive time of the year.
The 3,018 firms suffering from 'critical' problems alone owe a massive £52.7 billion to creditors. Although the total amount owing is down on the previous quarter (£57.5 billion) the number of companies has risen and the report puts this down to a growing number of SMEs suffering distress.
The executive chairman of Begbies Traynor, Ric Traynor, 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.Â Coming against a backdrop of the largest decline in house prices for a year, higher inflation, an accelerated decline in business confidence, and higher unemployment forecasted for 20113, these figures indicate the renewed challenges facing businesses across most industries in 2011, particularly in the SME sector".
The report also showed that the sectors it considers most at risk because of public sector cuts have already experienced an average 24%increase in financial distress from 49,756 in 2010(Q3) to 61534 in 2010(Q4). The sectors affected being recruitment, advertising, construction and business services together with the hard hit IT sector (27% increase).
The retail and supply chain sectors also suffered with the greatest increase being in wholesale, where margins are being squeezed from both ends.
Many firms it says will make informal arrangements with their creditors but for many of the smaller businesses formal insolvency may be the only recourse.
"After seven quarters of declines in the levels of financial distress, these figures show the first evidence of a hardening of creditor attitudes and the real strain being felt by UK companies at this point in the cycle" said Ric Traynor.