Four Year Low for Insolvencies

Figures from the Insolvency Service show that company liquidations in England and Wales in Q3 2013 were down 5.3% on the previous quarter, and down 15.8% on the same quarter in 2012. Personal insolvencies also dropped in the first quarter of 2013 to 25,006, 12.9% less than the same period 12 months ago.

Bev Budsworth, managing director of The Debt Advisor, said: “It’s great to see levels of corporate and personal insolvency continuing to fall. This is a welcome bit of good news for all of us, but we mustn’t get complacent and must realise that there are still tens of thousands of people with serious levels of debt, facing wage freezes, redundancy, benefit caps and rising prices in an economy that is showing little or no growth.

“However, although liquidations and corporate insolvencies in general are down, they do tend to mask the true extent of the problem. In 2012, around 20,000 companies were wound up and for every one of these, at least a further 80,000 to 100,000 ran out of funds and were struck off with creditors, having no chance of making a recovery.

“If you look at the figures from the Centre for Retail Research, 2013 looks like it could be even worse with over half the number of companies failing in the first four months of this year as did throughout the whole of 2012.

“Up to the end of April this year has already seen off 28 retailers and effectively closed nearly 1,900 stores which has affected over 18,500 employees. Many of these companies could possibly have survived with more support from banks, who have removed overdraft facilities with little or no notice, or with more time to help them do deals with their creditors.”

Bev’s comments come at a precarious time for the economy, with marginal growth of only 0.3% and the cold weather in March being blamed for a dip of 0.7% in retail sales when compared to the previous month.

Bev continued: “Looking at the figures for County Court Judgements, we see a slightly rosier picture. The value of corporate CCJs in the first quarter of this year was 68.7 million, nearly 21% less than the figure seen in the corresponding quarter of 2012. Likewise, the actual number of corporate CCJs has reduced by around 10%, from 18,722 in the first quarter of 2012 to 16,847 in the first quarter of this year.

“It does point to the fact that although there are glimmers of improvement for the economy, we are certainly not out of the woods yet.” 

Small pick up for SMEs, but lending to businesses remains weak, says BCC

Commenting on the latest Bank of England figures on business lending, John Longworth, director general of the British Chambers of Commerce, said: “Although it is encouraging that lending to small businesses rose slightly in March, UK firms are clearly operating in a challenging credit environment. The new look Funding for Lending Scheme must work to rectify this and ensure that the money reaches fast-growing and relatively new firms, who continue to struggle to secure the credit they need.

“This is part of a wider problem around business finance. There has been a lot of talk about the business bank but it must be delivered with the sort of urgency and scale required for it to be a true player, and not a pretender, in the lending market. While not competing with commercial banks, the business bank should work towards plugging the gap in access to higher-risk finance that so many firms are unable to cross.”

HMRC doubles asset seizures from businesses over unpaid VAT

HMRC has almost doubled its use of powers to seize businesses’ assets in order to settle late VAT bills in the last year.

Syscap says that HMRC used its powers to seize business assets – a process known as distraint – 4,746 times to speed up the payment of VAT last year, a 98% increase on the 2,401 times it used these powers to recover overdue VAT the previous year.

Philip White, CEO of Syscap, said: “Small businesses need to be aware that HMRC is becoming more and more aggressive in claiming VAT payments. Where it might have made some allowances in the past, it is now much less likely to relent in chasing the payments it demands.

“Businesses could previously find some respite in the Time To Pay scheme, which could grant a short extension to a tax deadline. HMRC’s use of that scheme has now dwindled significantly, which leaves a lot of businesses with very few options.

“Prior to the credit crunch, banks were offering more credit to SMEs, so businesses could fund their VAT bills through loans or overdrafts. Since then, however, capital adequacy rules have forced banks to rein in their lending which has made it more difficult for SMEs to rely on bank funding alone.

“As VAT bills are payable on invoiced work rather than receipts, many businesses will find themselves paying tax on work they haven’t yet received payment for. These businesses are likely to have invested money up-front in fulfilling contracts, putting further strain on available cash.

“While this pressure on cashflow might have been a nuisance prior to the credit crunch, problems with a big VAT bill could now be a serious threat to the future of a business.

“It is vital that businesses explore what other funding options are available to them, to make sure they use the most appropriate funding lines to manage predictable events like tax bills, and keep short-term options like overdrafts for emergencies.”

The Brightest Star in Europe for Car Sales is the UK.

John Leech, UK head of automotive at KPMG, has commented on the figures released by the European Automobile Manufacturers’ Association, showing that the number of cars sold in Europe fell by 9.8% in the quarter ending 31 March 2013, and by 10.2% during the month of March 2013. 

“There is no light at the end of the tunnel for car manufacturers, as car sales continue to freefall in Europe. Indeed 2013 is already shaping up to be the seventh straight year of falling car sales in Europe. The UK remains the only bright spot, enjoying increased sales of 5.9% in March; it also compares favourably to Germany, which saw sales drop by 17.1%, and France with a drop of 16.2%.

“The UK performance is even more remarkable given that the euro has weakened by 10% compared to sterling in the last six months, meaning that it is 10% less profitable for European car makers to sell cars in the UK compared to six months ago.  However, at the moment the UK is the only show in town for car makers who remain happy to support the UK market with discounts at historically high levels.”

March freeze costs UK small businesses £174m, says the FSB

More than half (55%) of UK small firms have been impacted financially by the recent prolonged cold weather, costing them £174m, according to the findings of a new survey from the Federation of Small Businesses.

The research showed that around six in 10 small businesses were impacted by the cold snap and that loss of demand (30%) and closures (26%) were the common impacts. Of those who closed or temporarily stopped trading, an average of 2.2 days was lost. Furthermore, around 27% of firms had staff absent for at least one day. The FSB says that, on average, each business lost £1,580.

In addition to the effects of the cold snap, one in five businesses also said they had been negatively impacted by the flooding in 2012. 

Mike Cherry, the FSB’s national policy chairman, said: "We may finally have turned a corner into spring, but it's been a long haul, following the coldest March in 100 years. While a few businesses have managed to take advantage of the weather many have found it difficult to manage. Not only have they had to cope with a lack of demand for products, but many have had to close.

"Our fear is that this prolonged cold spell will mean people are travelling by car to supermarkets or out-of-town shopping centres rather than utilising local shops. We need people to keep trade local and support local businesses that may be struggling as a result of the weather."

SMEs get £70 million funding boost

Small and medium-sized businesses (SMEs) are set to receive a £70 million lending boost as part of government action to increase the availability of finance.

Three new lenders – Market Invoice, URICA and Beechbrook Capital – will share more than £30 million of government funding to offer SMEs alternatives to traditional bank lending.

They have committed to attracting additional funding from private sector investors, with the total expected to boost the pool of credit available to SMEs from the three lenders by more than £70 million

Business Secretary Vince Cable said on 22 March: “A lack of access to finance is still choking off too many small businesses, preventing them from growing, taking on new staff or investing in new equipment.

“We are taking a range of actions to support SMEs and shake up business finance markets, including through the new business bank.

“Today’s £30 million announcement is an important boost for non-traditional lenders with creative and innovative solutions. It will increase competition and create a more diverse and balanced market for business lending.”

The funding comes from the Business Finance Partnership (BFP), through which the government has committed to provide £100 million of funding for non-traditional lenders in order to diversify sources of finance available to SMEs.

Currently, 85 per cent of all business loans are handled by the big four banks.

Services businesses in the UK continue to grow

Small business domestic turnover rose by 0.43% between Q3 and Q4 2012 according to The Cashflow Barometer, a quarterly study by ABN AMRO Commercial Finance.

The Cashflow Barometer is an indicator of the financial performance of UK small businesses, based on analysis of 700 companies. Despitethe latest quarter-on-quarter growth, SMEs experienced an overall contraction in turnover of 0.43% between 2011 and 2012. These results reflect a challenging year for the manufacturing, distribution and engineering sectors, all of which saw turnover fall during 2012, with this sector-specific decline cancelling out year-on-year growth in other industries, such as recruitment and services. 

Peter Ewen, managing director at ABN AMRO Commercial Finance, commented: “Since recession struck, we’ve seen sporadic recovery across all small business sectors. However, as time has gone on, some industries have been able to maintain that growth while others have stalled.”

Between Q3 and Q4 2012, turnover in the services sector grew by 4.18%, while recruitment fell by 4.96%.

However, year-on-year, both of these sectors saw a rise in turnover, services by 5.54% and recruitment by 5.97%. Both recruitment and services also experienced a reduction in days outstanding for payment of invoices between Q4 2011 and Q4 2012 – recruitment by three days, and services by one. 

Distribution businesses saw a significant spike in turnover of 10.74 between Q3 and Q4 2012 – historically a strong turnover period for this sector, due to seasonal demand. 

Across the longer-term though, distribution turnover fell by 5.97% between 2011 and 2012, and debtor days increased by one. 

Engineering experienced a fall in turnover of 8.22% between Q3 and Q4, and a year-on-year fall of 6.68%. 

Manufacturing turnover fell by a modest 1.75% between Q3 and Q4 but had the most severe year-on-year retraction of any sector, falling 7.16% between 2011 and 2012. 

Peter said: “Despite seasonal blips, we’re seeing an overall trend emerge of turnover decline in engineering, distribution and manufacturing, coupled with growth in services and recruitment. Temporary and part-time employment has increased, bolstering the recruitment and services sectors, but this growth is not guaranteed to last in the long-term and is giving something of a false reading that everything is ticking along. 

“In reality, engineering, distribution and manufacturing need a significant boost in order for a sustainable economic recovery to be truly achievable.”