Rise in UK Business Insolvency Levels

Business insolvencies in the UK expected to hover around 30% above pre-pandemic levels by 2025.

In its latest global report, Allianz Trade attribute this rise to the hospitality and manufacturing sectors which have contributed to an estimated increase of 16% in 2023, equivalent to 3,900 additional cases. Challenges including Brexit-related issues, the COVID-19 pandemic and persistent inflation have meant that all sectors have surpassed 2019 levels of insolvency.

The rate of insolvencies has been driven by a recession in corporate revenues and has been exacerbated by reduced pricing power and weakened global demand. High costs across the board have meant a squeeze in profitability and a deterioration in liquidity positions which is unlikely to improve before 2025.

Sectors most vulnerable to insolvencies

The sectors which are most vulnerable to insolvency include hospitality, transportation, and wholesale/retail, closely followed by construction. The elevated interest rates are reducing demand in sectors such as real estate and durable goods and will begin to start pressuring solvency in highly indebted sectors like utilities and telecom.

With slowing global economic growth, payment terms are expected to lengthen, exacerbating insolvency rates in the coming quarters. Global Days Sales Outstanding already exceed 60 days for 47% of firms, which leads to added pressure on cash flow and deteriorating financial stability. Closing the resulting financing gap is increasingly difficult with bank loans drying up for small and medium-sized enterprises (SMEs).

To learn more about how Credit Insurance can protect your business in the event of one of your debtors entering insolvency, contact Clearview Credit today.

The full Insurance Business Magazine article can be found here.