UK Companies Face Losses of £1.86 Billion in Bad Debt Write Offs

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Companies across the UK are facing losses of £1.86bn from invoices going unpaid, despite the Government’s COVID-19 support measures.

This is according to new data from Red Flag Alert, which shows businesses are set to write off £20million more in bad debt this year, compared to 2019.

Red Flag Alert’s most recent ‘Write Off Report’ data from 13th November 2020 shows total levels of written off business debt in the UK have risen by 1% so far this year, increasing from £1.84bn to £1.86bn.

Managing Director of Red Flag Alert, Mark Halstead, said:

“1% growth in insolvent debt can seem like a very marginal change. 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.”

Whilst the Write Off Report data does show a decline in the number of company insolvencies in 2020, it shows the average debt per company going out of business has increased by 7%. On average, insolvent businesses now leave behind £205,000 in unpaid invoices.

Mark Halstead added:

“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. Earlier this year we reviewed the administration of construction company Sanderson Contracts, which went into administration leaving debts of £10.3m and 17 suppliers at serious risk of failure.”

The retail sector has seen one of the largest rises in written off debt in 2020, with an increase of 47.8% from £59.3m at the end of 2019 to £87.6m in mid-November.

Other noticeable rises so far this year in insolvent debt include the construction sector, where write offs have risen by £31million to £283million, while hotels have seen write offs treble from £4.3m to £13.8m. The travel and tourism sector has seen a similar change, with insolvent debt growing from £5.2m to £13.4m.

Mark Halstead added:

“The real concern for some of the sectors that have seen significant rises in written off debt is that separate Government ONS* data identifies a trend of businesses pausing trading, with no immediate sign of recommencing work. 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.

“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.”

*The ONS, Business Impacts of COVID-19 survey, period 16th November to 29th November 2020, shows 9.7% of construction companies and 27.3% of accommodation and food services companies have ceased trading and do not intend to restart in the next two weeks.