Trade Debts to Cause Insolvency Tsunami

Half of all post-pandemic insolvencies in the UK will be caused by trade debts, according to insolvency experts.

The widely anticipated surge in insolvencies will occur between October and December this year, a study by the insolvency and restructuring trade body R3 has predicted. A recent Office for National Statistics (ONS) survey also found that one in ten British businesses are at risk of insolvency due to the Coronavirus pandemic.

Trade debts were one of the main triggers for corporate insolvency cited by insolvency professionals, who expect unpaid invoices to cause 50% of insolvencies. Rent (62%), taxes (48%) and wages (36%), are also likely to be major contributors to company collapses according to R3 members. Half of the businesses surveyed by the ONS have paused trading due to poor cash flow, and 11% said they had no cash left. The forecasted wave of insolvencies could ripple through entire supply chains.

To avert such a disaster, in June the Government introduced temporary amendments to corporate insolvency legislation, which will remain in effect until December 31st 2020. The Corporate Insolvency and Governance Act 2020 (or CIGA) is intended to provide the businesses in financial distress with additional breathing room. CIGA gives companies extra time to file their accounts, and businesses on the verge of insolvency will have a reprieve from their creditors while they seek to recover.

The drawback of CIGA is that it makes credit worthiness more opaque, and trading conditions even more precarious by allowing businesses to continue trading whilst technically insolvent. If you are worried about incurring bad debt from non-paying customers, individual invoice insurance from Nimbla will be unaffected by CIGA, and can help secure your trade against defaults. Invoice insurance can also assist businesses through cash flow struggle by improving access to external finance.

To find out more about how trade credit insurance can help your business through the downturn, don’t hesitate to contact Nimbla at [email protected] or call us on 020 3984 8833.


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