SME’s still at risk

According to this week’s report from the insolvency firm Begbies Traynor, small and medium businesses in the U.K. are still at risk and their problems may increase over the coming months.

At the end of the first quarter this year, well over 160,000 SMEs were faced with significant or critical financial problems.  The total debt among this group amounts to £55 billion, which presents a major risk for creditors and for the economy in general.

The report defines companies with ‘significant’ problems as those having a court action and accounts that are insolvent or out-of-date.  Companies with ‘critical’ problems are defined as those having £5,000 or more in County Court judgments and/or actions relating to wind-up petitions.  Even though the number of companies on the recent Red Flag list is less than that reported earlier this year, it is up 14 percent from the fourth quarter last year.

The improvement this year is due in part to creditors taking a harder line with late or non-paying accounts, but mostly to the normal seasonal upswing.  While government stimulus actions and lower interest rates have given an appearance of economic recovery and growth, Ric Traynor, Chairman of Begbies Traynor, said that once the stimulus programmes are withdrawn and interest rates start to rise again as expected, more businesses will feel the negative effects.

Companies hit hardest are those in real estate and construction, with retail and recruiting also showing a significant rise in the number of unpaid accounts on the books.  Overall, the report indicates that while there are positive indications for economic recovery at this time, more businesses are likely to feel the crunch before any definitive improvement takes place.