Tax & admin · 22 January 2016

Poor cash flow sees more firms unable to repay debts

Small firms are becoming less able to pay debts
A worrying increase in the cash flow difficulties of the UK’s small businesses in the last year has been revealed, as more and more debtors are unable to pay back money owed to lenders.

According to research from debt recovery law firm Lovetts, 56 per cent of the County Court Claims to recover debt in the UK in 2015 resulted in a County Court Judgement (CCJ) because the debtor was incapable of paying.

The figure is the highest it has been for six years and exceeds levels last seen during the worst of the recession in 2008 and 2009, backing up recent reports of diminishing business confidence. The Lovetts research also showed the percentage of claims to CCJ conversion grew by six per cent from 2014 to 2015 a large year-on-year jump.

Commenting on the findings, managing director at Lovetts, Michael Higgins, said: ‘some say this may be the toughest year for the global economy since the financial crisis. It is concerning that conversion by the Civil Justice department is even higher than during the recession, a strong indication that businesses are under increasing financial pressure.

A CCJ can have serious financial repercussions for small firms, Higgins continued to say. It impacts a company’s credit rating and may limit the ability to raise future funds or be extended credit.



Fred Heritage was previously deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London.