New figures showing the highest number of profit warnings being issued by UK firms in more than a decade should prompt North East business owner/managers to review their creditor lists to help prevent cashflow problems arising unexpectedly.
Andrew Haslam, North East chair of insolvency and restructuring trade body R3, has issued the advice after research from professional services firm EY revealed that there were more profit warnings from listed companies in the first nine months of 2019 than in any year since 2008.
And he is advising businesses to be on the lookout for invoices being settled later than usual, and/or outside the agreed period, which can be one of the clearest indications of potential business distress.
Recent R3 research indicated that late payment of invoices was the most common sign of business distress among firms across the North East, North West, Yorkshire and Humberside, with one in five (20%) saying they were still owed payment on invoices more than 30 days after their due date.
R3 also last year found that one in four UK companies had taken a financial hit following the insolvency of a customer, supplier or debtor in the preceding six months.
Companies listed in Britain issued 235 profit warnings between January and September, with concerns over the economy, delayed or cancelled contracts, and Brexit-related issues being the three main reasons why.
The most recent quarterly statistics from the Insolvency Service also found that corporate insolvencies were 2% higher in Q3 2019 than the same quarter last year, and 21% higher than in Q3 2017.
Andrew Haslam, who is also head of specialist business advisory firm FRP Advisory LLP’s Newcastle office, says: “We’ve seen many well-known businesses getting into trouble this year, and when one of them disappears, they usually leave behind dozens of smaller supply chain firms with invoices still outstanding.
“The ‘domino effect’ of one struggling business affecting the fortunes of many others is a regular situation seen by insolvency practitioners working with distressed companies, especially when an SME has become over-reliant on the work it does for a single large client.
“Finding that invoice payments are taking longer to come through should be a real warning sign to business owners, and while it can potentially be difficult or sensitive for them to investigate exactly what’s happening within much larger client companies, not taking such steps could create real problems further down the road.
“Business owners should maintain the widest possible view of the factors that could potentially impact on their operations, even if they are out of their direct control.
“Directors should be acting quickly to get qualified advice as soon as they become aware of any potential problems arising, so they retain the widest possible range of options for safeguarding their own operations if their fears turn out to be well-founded.”