Home Finance & Investments Insolvency ‘Domino Effect’ Hitting Over One In Five Regional Firms

Insolvency ‘Domino Effect’ Hitting Over One In Five Regional Firms

Over a fifth (23%) of regional businesses have suffered a hit to their finances following the insolvency of a customer, supplier or debtor in the preceding six months, according to new research from insolvency and restructuring trade body R3.

Ten per cent of the companies surveyed by R3 across the North East, North West and Yorkshire and Humberside described the financial impact of the insolvency of another business as “very negative,” with a further 12% of regional respondents describing it “somewhat negative.”

And the R3 research has also revealed that more than a quarter (27%) of regional companies say they’re owed payment on invoices that are more than 30 days past their due date.

R3’s research highlights the so-called ‘domino effect’, where one company’s insolvency will increase the insolvency risk for other related firms.


Across the UK, in the first quarter of 2018, underlying insolvencies climbed 13% from the previous quarter as the impact of a spate of high profile insolvencies involving large companies, such as Carillion or Toys R Us, became clear.

Andrew Haslam, chair of R3 in the North East and head of specialist business advisory firm FRP Advisory LLP’s Newcastle office, says: “No business exists in isolation, and every headline-grabbing corporate insolvency will have consequences for numerous other enterprises. In the worst-case scenario, the loss of a vital business relationship can lead to a company’s own insolvency in turn – the ‘domino effect’ in action.

“We’ve seen a string of insolvencies of high-profile companies this year, from Carillion to Toys R Us, which will have caused the upheaval at other firms that’s been identified in our research.

“For example, our members reported an immediate upsurge in requests for advice from companies with links to Carillion after news of its liquidation came out, while the difficulties being experienced by a number of High Street retailers is causing less visible struggles within their suppliers’ and service providers’ operations.

“The problems caused by the domino effect are often ones that firms are able to weather, albeit with a hit to future turnover and profitability, and the insolvency and restructuring profession plays a key role in helping firms keep trading with ‘under the radar’ advice and guidance that enables them to avoid formal insolvency procedures.”

The rise in late payment problems has arisen despite substantial attention being paid to the problem at regional and national levels, including a call from the Federation of Small Businesses for the introduction of a strengthened Property Payment Code which would see FTSE 350 companies banned from applying for public sector contracts if they fail to pay contractors within agreed periods.

A 2016 R3 survey of the insolvency profession found that late payment for goods or services had been a primary or major cause of 23% of insolvencies in the preceding twelve months.

Andrew Haslam continues: “A great deal of effort is being made to improve business practice around paying suppliers on time, but our figures would suggest there is still much more that needs to be done.

“If payment terms are agreed with suppliers, then customers can have no legitimate reason not to stick to them, let alone still owe money so long after the initial deadline.

“R3 North East members work on business insolvencies where late payment has been a contributory factor every single day. Late payments put unnecessary strain on the finances of businesses, and can stop them investing in new services, taking on new commercial opportunities or even having enough cash in the bank to cover their day-to-day costs, which can threaten their very viability.

“Problems can hit businesses in any industry at any time, and management teams need to have a firm grip of their financial positions in order to be fully aware of the situation facing them and to then have access to the widest range of possible solutions to their problems.”