Construction Insolvency Falls but Packaging insolvency cases rise

The latest company insolvency statistics for January to March (Q1) 2016 reveal mixed fortunes for some of the UK’s most troubled industries. Construction is consistently the industry with the greatest number of company insolvencies; however, despite still topping the insolvency charts, the construction sector has seen a 15 percent decrease compared to the same time last year. The number of insolvencies is now 40 percent lower than in 2010.

Unfortunately, the forecast for the packaging insolvency is not quite so optimistic. Following a stable year in 2015, the number of company failures is predicted to rise in 2016 due to continual cost cutting from end-retailers and surges in the prices of raw materials.

Firm foundations in the construction industry

The insolvency statistics broken down by industry are published with a quarterly lag due to the time they take to produce, which means the latest figures are for Q4 2015. In this quarter, only 566 construction firms were declared insolvent, which is the lowest quarterly level since records began in 2010.

In the year 2015 as a whole, 2,462 construction firms became insolvent. This is 15 percent less than 2014 and 40 percent lower than the 4,072 insolvencies in 2010. Insolvencies in the construction industry have now fallen for four consecutive quarters.

Breakdown by industry area

Construction companies have been buoyed by rock-bottom interest rates that are easing the pain of debt repayments, and are continuing to benefit from low energy prices. This has given many firms additional breathing space over the last year. The result has been falling company insolvency rates across the board.

Of the 566 construction insolvencies in Q4 2015, 180 firms classified as working in the construction of buildings have collapsed, down from 182 for the same period last year. The largest decline in the sector was amongst specialist construction firms, with insolvencies falling by 9 percent in the previous quarter.

The record low number of administrations in the UK economy was mirrored in the construction sector, with just 180 construction companies entering into administration in 2015. However, although this represented a low for the year, there was a 21 percent increase in the final quarter.

The packaging sector is predicted to struggle

The ongoing price war between the major supermarkets that is hitting food producers so hard is also taking its toll on the UK’s packaging firms. As a result of cost cutting, competition is heating up in the industry as the big supermarkets demand more for less. This is having a heavy impact on the packaging industry’s margins.

Following a largely stable year in 2015, businesses are now facing increasing financial risk due to these pressures. While industry outsiders might think lower commodity prices would relieve this pressure, the lower prices demanded by end-users are cancelling out any decrease in production costs.

What preventative measures can packaging companies take?

The increased pressure in the sector has put greater emphasis on tracking payment patterns and becoming more vigilant with existing and new customers. Accessing improved customer information is key, as many businesses often miss the warning signs that a client is struggling with their cash-flow.

Payments that come in only when a customer is reordering a product can be indicative of cash-flow problems. Requests for changes to payment arrangements or a failure to comply with existing payment terms are also tell-tale signs of impending financial difficulty.

With the number of insolvencies in the packaging sector forecast to rise in 2016, it’s essential these warning signs are not missed. Insolvencies rarely occur without a number of symptoms surfacing beforehand. Putting the correct credit risk management practices in place, and monitoring new and current customers carefully, can help to reduce the impact of failures in the wider supply chain.

How can we help?

If you want to discuss your business debt problems in confidence with a company rescue expert, please call our director’s helpline on 08000 746 757. Identifying problems early and seeking professional assistance will give you the best chance of rescuing your business.

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