An increasing number of companies are delaying entering into administration due to government support – but payments “give the game away”, according to Patrick Coghlan, CEO of CreditorWatch.
“While at first glance, a decrease in business administrations, court actions and defaults seems to indicate a rebounding economy, however when we take a deeper look, it’s clear that trouble is brewing and that businesses are struggling with significant cash flow issues,” Mr Coghlan said. “Payments in June were overdue by an average of 49 days across all industries, 342 per cent higher than the June 2019 figure.”
Payments in construction increased to 53 days overdue, while electricity, gas, water and waste services increase to 37 days overdue and rental and real estate services increased to 37 days overdue – resulting in a “significant jump” in the number of businesses coming out of hibernation and entering administration as the fiscal cliff approaches.
“Until now, the priority has been to keep as many businesses as possible above water,” Mr Coghlan said. “Come September however, support packages will be lifted and we’ll find that a substantial number of ‘zombie businesses’ have been kept artificially afloat.
“Banks will not be prepared to prop unviable companies and nor should taxpayers, however, the government can ease the impending insolvency curve by lifting [safe harbour] measures gradually and forming an administration service to support the industry”.
CreditorWatch data shows a 50 per cent decrease in administrations from June 2019, while court actions and payment defaults dropped 17 per cent and 25 per cent respectively. Around 600 companies have stayed in business that would have collapsed in normal conditions.
“As lockdown restrictions impeded cash flow, the measures announced by the government saved jobs and enabled firms that would otherwise have closed to hang on,” Mr Coghlan said. “This could be a stay of execution for struggling businesses and we should prepare for a double whammy of administrations when the measures are lifted in September.”
