Insolvency and restructuring trade body, R3 has recently revealed that one in four (26%) of UK companies have suffered financial hits due to the insolvency of customers, suppliers or debtors, in the last six months – reporting a so-called domino effect. Take Carillion or Toys R Us for example. After Carillion went into liquidation, an immediate upsurge of requests for advice from companies linked to Carillion was reported.
As Andrew Tate, the R3 spokesperson states: “No business exists in isolation, and every headline-grabbing corporate insolvency will have consequences for numerous other enterprises’’.
47% of firms reporting a negative hit were construction companies, where house prices have weakened in growth as well as less being spent on infrastructure, reducing the sectors’ GDP contribution.
Wholesale and transport were the next most affected sectors. For small companies, 24% reported a negative impact, with the impact being 30% for larger companies (those with a turnover of over £25m) and 38% for medium-sized enterprises - showing they have the biggest impact. This is said to be due to MSE being less likely to have the same resources focused on credit control. They also tend to rely on single suppliers and customers, which means any difficulties a single supplier or customer has, could cause a disproportionate effect.
Andrew Tate says that ‘’smart businesses’’ should actively monitor their partners’ credit profiles, diversify to spread risk and build strong relationships to provide support when major counterparts hit a rough patch, to mitigate the risk of insolvency in their own, or their customers' supply chain. As he states, ‘’Counterparty insolvency is likely to affect every business out there at some point so prepare as best you can, with a contingency plan in place.”
Categories: Insolvency process