Are high UK insolvency rates in January just a myth?

• Cold weather, peaking energy bills and post-Christmas spending slumps all give the impression that January is a tough time for businesses, with a belief that UK insolvency rates rise in Q1.
• The data tells a different story, with January often recording some of the lowest insolvency rates in the year. However, year-on-year insolvencies are on the rise and economic worries are front of mind for many key decision makers in January.
• There are several effective ways for businesses to protect themselves against insolvency with trade credit insurance being one of them..

Do UK insolvency rates peak in January?

In short, no they don’t.

There’s no denying though that January and the beginning of Q1 pose challenges for many businesses. Spending increases in December, leaving consumers with less disposable income as the new year starts. Temperatures also fall, leading to increased energy usage and higher bills, all of which combines to give the feeling of a hard start to the year.

It’s very possible therefore, that a difficult start to the year may cause a peak in UK insolvency rates we typically see a few months later. The UK  Government’s numbers show that January records some of the lowest insolvency rates of the year. In 2023 there were just 1,671 insolvencies. The peak happened later on in the year in May with 2,552 insolvencies – 53% more than January.

It was a similar story in 2022 too with UK insolvency rates peaking in March at 2,120 compared to January’s 1,567, the second lowest monthly total with just 49 more insolvencies than February.

So while we may not see insolvency rates peak in January, this doesn’t mean businesses are immune. With 1,500+ businesses going insolvent for the past two Januarys, it is still a real concern. Most notably in January 2023, the well-known high street retailer, Paperchase, appointed Administrators.

What are the trends in UK insolvency rates?

While there’s no real indication of one month having more insolvencies than others, the data does show a year on year increase. In 2023 the only month that didn’t show a year-on-year increase was July, recording a 6% drop. March saw the biggest increase with 40% more insolvencies in 2023 compared to 2022. The challenges contributing to this overall increase include the ongoing profitability squeeze challenging corporate liquidity, less access to affordable financing and continued wage growth.

The Accommodation and Food Service Activities sectors were hit particularly hard in 2023. Insolvencies increased by 37%, to more the 4,400. This made up 15% of all insolvencies, and was only topped by Wholesale and Retail Trade (15%) and Construction (18%).

Predictions for 2024

Our predictions for the coming year are more of the same:

• Global business insolvencies will accelerate by up to 10% on pre-pandemic levels
• Wage growth will continue to rise by as much as 5.2%
• Late payments will continue to increase pressure on businesses.

This will lead to increased pressures across multiple sectors as businesses see disruption to their supply chains, unfulfilled orders, and a potential  domino effect where one insolvency causes a ripple effect to the rest of the supply chain leading to insolvencies elsewhere.

But looking beyond 2024, the outlook is brighter. We predict a -2% fall in global business insolvencies in 2025 as things stabilise on both sides of the Atlantic.

Ways to protect your business from the effects of higher insolvency rates

With UK insolvency rates predicted to rise again in 2024, it’s wise to protect your business with a trade credit insurance policy.

Trade Credit Insurance enables you to offer B2B credit terms with confidence by insuring your trade receivables due within 12 months.

So if a customer fails to pay, whether it’s due to insolvency, refusal or an inability to pay under the terms of the contract, a policy indemnifies your losses.

Whilst it reimburses losses occurred, it also informs your credit risk decisions through powerful insight on who to extend credit to and what limits to offer. This means you can avoid offering credit terms to customers with a higher risk of non-payment.

To find out more about market-leading trade credit insurance from Allianz Trade, contact our specialist team for a free consultation on 0800 056 5452.