Small businesses are reportedly at risk of falling into a debt spiral caused by mounting unpaid or outstanding invoices as firms continue to suffer in the aftermath of the recession.
According to insolvency group, Begbies Traynor, the debt problems of Britain’s businesses will have a knock-on effect on the rest of the economy and could impinge on overall recovery.
The group’s Red Flag survey, which monitors financial distress of firms, has shown that 161,601 companies reported “significant or critical financial problems” in the first three months of the year, which marks a 14% rise on the last quarter of 2009.
More than £55 billion is currently owed to other companies, with experts warning that we could see a “ripple effect” of company insolvencies.
As more businesses become unable to clear debt, and are forced into insolvency, and therefore defaulting on their debts, there is concern that this will have far-reaching consequences on the rest of the country’s fragile recovery.
Kevin Still, debt expert and director of debt solutions provider, Atlantic Financial Management, said: “Losing a business out of a supply chain causes a debt ripple effect on both suppliers not being paid and the employees of the company. Slow payment already blights small businesses, especially sole traders and micro-businesses, where the consequences can cause personal debt problems.
“Employees of the business may also suffer financial hardship when a business suddenly folds, with many having no financial reserves. Loss of income is the number one reason for people starting an Atlantic Debt Management Plan (DMP) or Individual Voluntary Arrangement (IVA).”
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Tags: overall recovery, recession