Companies across the UK are facing losses of £1.86bn from invoices going unpaid despite the government’s Covid-19 support, an insolvency firm has revealed.
Red Flag Alert, which help businesses protect their company from financial risk, has released data showing businesses are set to write off £20m more in bad debt this year compared with 2019.
The firm’s ‘Write Off Report’ data from 13 November 2020 shows total levels of written off business debt in the UK have risen by one per cent so far this year, increasing from £1.84bn to £1.86bn.
Although there was a fall in the number of company insolvencies in 2020, the average debt per company going out of business has increased by seven per cent.
On average, insolvent businesses now leave behind £205,000 in unpaid invoices.
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“One per cent growth in insolvent debt can seem like a very marginal change,” said Mark Halstead, managing director of Red Flag Alert.
“However, when we consider the government’s Covid-19 measures including the Corporate Insolvency and Governance Act as well as loans, grants and salary support, levels of bad debt this year should have really declined.
“Government has provided struggling businesses with breathing space and financial support that was meant to avoid bad debt and to keep cash flowing throughout supply chains.
“Insolvencies vary significantly in value and it’s the ripple-effect that can prove so damaging, as it literally sucks serious amounts of revenue out of supply chains.”
The retail sector has experienced one of the largest increases in written off debt in 2020, with a rise of 47.8 per cent from £59.3m at the end of 2019 to £87.6m in mid-November.
Meanwhile, the construction sector has seen write-offs rise by £31m to £283m, while hotels have been hit with three times more from £4.3m to £13.8m.
“The impact of these failing companies won’t be seen until early next year, when a number of other factors come into play and will make it even more challenging for struggling companies to survive,” said Halstead.
“Government Covid-19 support is shifting from grants and loans, and measures protecting businesses from insolvencies to rebuilding the economy. At the same time, the completion of the Brexit transition draws increasingly closer, bringing new operational complexities and costs.
“Written off debt will grow significantly and repeatedly in the next six to 12 months. Companies need to ensure they are protecting themselves against an ever-increasing risk of customers defaulting on outstanding payments.”