Insolvencies to hit new highs over the coming months as supply chain woes tip the balance 

Insolvencies in Q4 of 2022 were up 30% YoY, according to the latest official data.

The news comes as airline Flybe goes into adminstration, with flights from and into the UK cancelled as of 28 January, impacting thousands of travellers. The High Court has appointed David Pike and Mike Pink as joint administrators.

Another high-profile victim of the challenging economic climate is stationery retailer Paperchase. It has fallen into administration after the firm failed to strike a rescue deal.

James Burgess, head of Commercial at Atradius is warning that we could see insolvencies hit new highs over the coming months as more businesses fall victim to the looming recession and soaring interest rates. 

Cash flow constraints

Atradius’ claims data also highlights the number of claims recieved for late of failed payments was 85% higher in 2022, compared to 2021, as supply chains began to felt the effects of faltering cash flow. 

“This morning’s ONS figures confirming 5,995 business insolvencies were registered in Q4 of last year are sobering news, and unfortunately we’re likely to see business failures rise across all sectors as the months go on,” said Burgess.

”The figures speak for themselves, with insolvencies 30% higher than the same period in 2021, and 7% higher that Q3 of 2022. The liquidation rate in 2022 was also the highest we’ve seen since Q3 of 2015.

“Our internal claims data also indicates businesses are already falling victim to the looming recession, with the number of claims for late or failed payments reported to us in 2022 a staggering 85% higher than in 2021.

“Lower levels of insolvency in 2021 were largely as a result of increased government support, but as this is no longer the case, the numbers will almost certainly be heading in one direction.

Supply chain woes hit firms hard

One of the main reasons firms are finding themselves filing for insolvency is the fall down of supply chains, according to Burgess.

“This will have huge implications for firms during a recession,” he explains. “If a customer fails to pay on time – or at all – the domino effect on supplier firms is wide-reaching, particularly at times when cash is tight.

“Firms across the board are facing an unprecedented number of challenges, from the continued fall out of Brexit and the Covid-19 pandemic, to labour shortages and soaring energy costs.

”Many business leaders will no doubt already be having difficult conversations about whether they can continue to operate at all, let alone profitably.

“But businesses almost never go into insolvency overnight, and there are a number of warning signs suppliers need to look out for beyond just late payments, such as taking advantage of full credit lines, a change of banks or high turnover among senior managers.”