An analysis of the most pressing concerns based on insights from 1,000 UK business leaders.
Author: Colin Cunningham
Nearly half of all firms reported an increase in the price of goods or services bought in June, while only 20% increased their prices, according to the latest data from the Office of National Statistics (ONS)1.
Government insolvency statistics published in July show registered company insolvencies increased by 40% compared with June 2021 and were 15% higher than pre-pandemic (June 2019)2.
There were 10,688 insolvencies in H1 2022 compared with 8,684 for the same period pre-pandemic and 5,588 for H1 2021 – a 91.27% increase this year compared with H1 2021 and a 23.08% increase compared to the same period pre-pandemic.
“These statistics continue to highlight the impact of inflationary pressure, rising costs, Brexit, supply chain interruption, labour shortages and costs on businesses at a time when they are trying to recover from the pandemic,” said Gallagher National Client Development Leader, Trade Credit, Colin Cunningham.
The buy/sell disparity by sector
In July 2022, 62% of businesses reported that they were affected by general price increases in one or more ways, according to the ONS. When excluding SMEs with fewer than ten employees, 58% of businesses said they were forced to absorb costs.
The ONS findings demonstrate that the cost of goods or services has increased for businesses each month, and this has been constant since March 2022. The ongoing disparity between the prices bought and sold emphasises the significant challenge of passing on increased costs for businesses. Yet this impact has not been evenly distributed across sectors. Nevertheless, this impact was not evenly distributed across sectors.
While there has been considerable coverage of rising food and hospitality costs, 74.7% of accommodation and food service firms have reported an increase in price for items bought, with only around 31.1% of businesses reporting an increase for goods or services sold.
In June, the ONS reported transport and storage companies were more pessimistic about the prospects for the month than those in any other sector. Two-thirds of companies in the sector (66.8%) reported an increase in price for items bought, with only around 27.4% of businesses reporting an increase for goods or services sold.
In manufacturing, 64.4% of businesses reported an increase in price for items bought, with only around 27.7% increasing prices of goods or services sold, against a backdrop of order books deteriorating for the first time in 18 months. Firms have curbed raw material buying and hiring as they reassess their requirements for the coming months, according to S&P Global3.
Prices for building materials have been soaring over the last year, and 62.8% of construction businesses have reported an increase in price for items bought, with only around 21.1% reporting an increase for goods or services sold.
Record profit warnings
The number of profit warnings issued by UK-listed companies in the first six months of 2022 increased by 66% compared to the same period in 2021, with a record number of companies (58%) citing rising costs as the reason behind their warning, according to EY-Parthenon’s latest Profit Warnings report4.
The report found that UK-listed companies issued 64 profit warnings in Q2 2022, 50% more than the same quarter of 2021 and 10% above the pre-pandemic average.
“Companies are facing a myriad of headwinds that will challenge even experienced management teams. In Q2 2022, we moved into yet more uncharted territory as inflation and interest rates reached multi-year highs while consumer confidence fell to record lows – all against a backdrop of geopolitical tension,” said Alan Hudson, EY-Parthenon Partner and UK&I Turnaround and Restructuring Strategy Leader.
“Businesses will need to prepare for lower growth, tighter capital and significant market volatility in the coming months.”
There is no escaping that the value of a business falls when a profit warning is issued. Investors use profit warnings to guide their investment decisions, so the implications for the company announcing a warning can be significant. A profit warning from a large business can trigger a panic in the market, and the financial fallout is likely to be felt across its supply chain.
Could your business survive non-payment of a major invoice?
A recent report from trade credit insurer, Atradius, forecasts a 33% increase in global insolvencies this year5. In this volatile environment, where inflation is rising and profits are in jeopardy, it is even more important that businesses protect themselves against the potential “domino effect” of late payments and customer insolvency. Trade credit insurance can effectively insulate your business against debt from customers failing to pay for goods or services provided to them on a credit basis, which often happens in an insolvency situation.
Clients can also use trade credit insurance tactically to facilitate business growth into new markets and with new customers and suppliers. A firm may offer higher credit limits to customers and instil suppliers with more confidence because it is less likely to default on a payment due to cash flow problems caused by the knock-on effect of non-payment.
How Gallagher can help
Gallagher’s Trade Credit team can help determine an appropriate credit insurance solution for your business. Clients may wish to protect:
- whole turnover
- specific key accounts
- a single customer
- a single invoice
