SMEs cannot afford to relax despite insolvencies falling
A FALL in the number of firms going into liquidation should not lead to complacency in the SME sector, a legal analyst has said.
Latest data from the Insolvency Service has revealed there were 3,971 compulsory and voluntary liquidations in England and Wales in the third quarter of this year – a decrease of 2.8% on the previous quarter and 6.6% less than the same quarter in 2011.
However, commercial litigation and insolvency lawyer Sam Pedley said it would be wrong for businesses to relax or ‘take their eye off the ball’ in the months ahead.
Mr Pedley, associate solicitor at law firm MFG Solicitors, said: “These latest figures show a dip in the number of firms going into liquidation. But they aren’t statistics we should get too carried away with.
“A near 7% drop year on year in figures has, as expected, been widely welcomed here in the West Midlands but people must remember the economy is still suffering and a sustained period of economic growth is anchored far into the distance.
“It’s a historical fact that these insolvency figures are linked with our long recession and they demonstrate a fall from a fairly static position since 2008. Our region didn’t see a huge increase in the number of liquidations when the recession kicked in so people must keep their eye on the ball as we’re far from out of the woods.”
He said on the positive side, the figures showed business leaders had been taking advice and finding new ways to cut their financial cloth tighter than in 2011.
“I’ve seen many examples of firms doing things differently to keep their cash flow moving. But I am certain that strategy could quickly change later next year if the economy improves,” he said.
“If an upward trend does materialise then we will see more firms taking action to recover debts as it will be far more worthwhile to pursue debtors if they have a better chance of recovering funds – a potential situation firms who owe a lot to creditors must keep in the back of their minds.”
Mr Pedley said firms feeling the pinch should learn to co-operate with creditors and not ignore them.
“But there are also some common sense cash flow measures, such as debt recovery, prompt invoicing, timely and effective chasing of those invoices and even ensuring terms and conditions are clear to customers. Simple but effective tactics which can go a long way to keeping any firm solvent during this tough time,” he added.
He warned that the demise of retailer Comet should remain as a prime example of why businesses must be cautious of their trading positions even during busy times such as the festive period.
