Over the past six months, many businesses have had a false sense of security. A raft of government support schemes have been keeping them afloat — but these will be ending soon. So how devastating will the lockdown be on SMEs?
The Insolvency Landscape
It may seem strange that global insolvencies are actually down on last year’s figures. The UK is typical of this, with a fall of over 20%, in spite of so many high-profile failures.
The reason, of course, is that the UK government, in common with most others, has implemented a wide range of measures — most obviously the furlough programme — to allow businesses a breathing space to ride the choppy waters.
However, with this protection winding down, forecasts suggest insolvencies are going to start rocketing. Atradius, a leading trade credit insurer, predicts global insolvencies will rise substantially by the end of the year. Levels are likely to range from just a 6% rise for Germany to 41% for Turkey, with figures depending on factors such as the susceptibility of the country’s industries to the lockdown.
Insolvency in the UK
The UK’s projected insolvency rise is 27%, the ninth highest out of the 31 economies surveyed. This covers all types of business, but since the vast majority of businesses are SMEs, these will necessarily be heavily hit.
Many businesses that have been unable to sustain themselves during the lockdown, from hospitality and entertainment to travel, have had some or all of their employees on furlough. This hasn’t solved all their problems, though. In spite of having few or no payroll expenses, they still have other outgoings they struggle to cover.
Grants, loans and mortgage holidays have all helped to cover costs, but when the furlough scheme ends on 31st October, one of two things is likely to happen. Either the company will find a way to build up its business again, or it will be unable to pay its way and face insolvency.
Prospects for the Future
While Atradius predicts a lower growth in insolvencies in 2021, the fact remains that insolvencies will continue increasing. In any case, their projections assume a vaccine for the virus and an easing of lockdown — but there’s still a chance that might take longer.
Are you worried about becoming part of the insolvency statistics? There are a few things you can do to improve your chances. One is to be imaginative about meeting the different needs of lockdown and social distancing, while another is to tighten up the systems your business relies on.
Among the most important, of course, is your credit control. After all, if you’re going to keep your head above water, you need to have money you’re owed flowing in as promptly as possible. Feel free to give me a call for a chat, if you need help chasing up outstanding invoices.