The number of manufacturers facing ‘significant’ or ‘critical’ financial problems rose 12% to 6,820 in the first quarter of 2010 according to the latest Red Flag update from insolvency firm Begbies Traynor.
‘Significant problems’ refers to court action very poor insolvent or out date accounts. ‘Critical problems’ include County Court Judgements totalling £5,000 or more or Wind-Up Petition related actions.
Around the country, companies were worst affected in the South West (up 46%), West Midlands (up 16%), the North West (up 12%) and the North East (up 12%).
The findings would seemingly back the Confederation of British Industry’s latest Industrial Trends Survey which found that although orders have increased both at home and from abroad, cost pressures continue to affect the bottom line.
“While the economy appears to be showing positive signs of recovery, these figures demonstrate that those green shoots are fragile and that we cannot take a continued recovery for granted,” said Nick Hood, Begbies Traynor partner.
“The manufacturing sector, in particular, has received a boon as its customers plan for the recovery by replenishing inventories. However, we believe that this short term boost will tail off, leaving manufacturing companies which have boosted their own stocks and resources more exposed than ever to potentially more subdued levels of demand.”
He urged manufacturers experiencing financial problems to continue to keep costs and cash flow under control.
“The recovery phase poses special problems for those manufacturing businesses seeing much-welcomed growth, as they struggle in the current climate to access the extra working capital they will need to fund their expansion,” he added.
“Across all sectors we are seeing trade creditors increasingly seizing the opportunity of an improved economic climate, to take action against their debtors in order to raise much needed working capital.
This shift in behaviour heralds a new phase in the cycle, putting manufacturing companies experiencing financial problems at greater risk of failure than ever.
“There is also the threat that the government support measures which have provided welcome support for companies in difficulty may inevitably be switched off. This will need to be handled sensitively to ensure a soft landing.”
Across all sectors, the number of companies experiencing significant or critical financial problems has risen by 20,074 or 14% to 161,601 and together those companies owe over £55bn to creditors, suppliers and service providers.
