2020 was a tough year, not just for UK businesses but all around the globe. In March, the economy came to a shuddering halt. The FTSE 100 dropped 14%, its biggest decline since 2008. GDP fell 25% in the second quarter of 2020. Oil prices declined to the lowest level in 18 years.
Within six weeks, British business had found a way and building sites began to reopen. For us in the invoice finance world, collections had recovered within around 8 weeks. You can’t keep British business down and I strongly believe we will always find a way.
Fast forward to April 2021 and a report by the European Systemic Risk Board (ESRB) titled ‘Prevention and Management of a large number of corporate insolvencies April 2021’ has tried to shine some light on the risk of large-scale insolvencies.
The report states that the number of insolvencies in 2020 was significantly lower than previous years. It proposes that businesses are yet to see the true effects of the contraction of the economy due to the economic measures put in place by the Government during the COVID-19 pandemic.
The report goes on to suggest that low rates of corporate insolvency could be explained by several factors:
In my opinion, it's hard to draw a comparison when comparing the 2008 financial crisis and COVID-19 pandemic. The support offered to business has been like night and day. In 2008 a bank would be supported; however, its customers would have very limited access to funds to support their business. In 2020 the vast majority of businesses did have this support offered by way of grants, furlough and loans. And let’s not forget the courts initial closure and HMRC offering deferral of VAT and not aggressively collecting arrears. This was a welcome relief and will have undoubtedly helped many businesses.
As the business support starts to wind down, and HMRC soon starts to collect taxes that are overdue, insolvencies will rise. It will be interesting to see how these will split between straight liquidation, company voluntary arrangements, and prepack administration. The former of course will result in job losses and have a knock-on effect to customers.
As for the question I asked in the title, will the UK see a large wave of insolvencies? The answer can only be that its too early to tell, but the warning signs are there. Optimum Finance has supported business all the way through the pandemic and stands by to support British business moving forward. Our invoice finance facilities could be the perfect solution to give your business the additional cash flow needed to cover your deferred tax and loan payments now due.
At Optimum Finance, we utilise innovative technology to offer a range of flexible funding solutions, which grow alongside your business. Get an instant quote for the amount of funding you could access by entering your annual turnover into our web app. Products include invoice discounting and factoring that can boost your cashflow and give you access to a dedicated credit control team.
Email or call us to speak to our experienced team of experts and find out how invoice finance could help your business. We pride ourselves on getting things done quickly and providing access to cash within 24 hours of approval. We are passionate about finding solutions and delivering to clients’ needs.