The business failures in key sectors since the UK locked down in March has created a domino effect of debt amounting to nearly £800m of invoices outstanding within their supply chain at the point of administration, according to corporate distress data analysts Red Flag Alert.
With an average individual debt of £28,501, the research found there are a further 227 businesses across the bars and restaurants, construction, retail, logistics and real estate sectors, which are at very high risk of failure.
Construction is the sector with the most lockdown business failures reporting 1,884, owing a total of £364m to suppliers up from £235m of insolvent debt from the same period in 2019. A further 120 companies in the construction industry are at high risk with around half of them expected to cease trading within seven days. Retail followed closely, leaving £316m of insolvent debt in the wake of the failures within the sector.
Mark Halstead, a partner at Red Flag Alert, explains: “When a company goes into administration, understandably the immediate focus is on the amount of loss of a brand or legacy and the jobs potentially under threat. The story that’s not often told is the significant pressure this will place on the businesses in their supply chain and the sector that they operate within. The reality is that this research shows more than 25,000 businesses have experienced unpaid bills since lockdown because of the domino effect of these business failures. “The overall figures seem stark, but in fact they are lower than the same period last year in terms of the total number of company failures and the level of insolvent debt across these sectors as a whole. Government support for businesses has created a limbo period. Unfortunately, the current outlook is that we expect high levels of business failures and payment defaults during the next six months which will create more stress in these key sectors. It’s never been more important to understand the strength of the companies within your supply chain and any to pinpoint any potential distress.”