Accountants Expect More Insolvencies in Small Firms

According to the latest annual credit check survey conducted by Accountancy Magazine Venture Finance, SMEs are finding it difficult to find funding and most of them turning to other ways of funding such as ABL (asset based lending).

Out of 250 accountants participated in the survey, 60% of the accountants believe that there will be further increase in the rate of insolvencies of small firms. The survey was reveals that despite the tentative return to growth of economy, 36% of SMEs are still suffering due to recession. The results of Q2 2010 were comparatively worse than in 2009. 1 in 3 accountants opined that UK business strength is very weak.

On analyzing the results, accountants came to conclusion that, the bad performance or insolvencies of the small firms is because of the traditional financing methods which are unable to meet their requirements.

60% of the accountants say that clients are most focused on stabilizing their performance rather than growth (25%). They also report that 27% of them are shrinking and 18% are at risk of over trading. Apart from this many firms are dying, as they are unable to meet their working capital requirements.

When asked on how to improve the situation, 70% said that upturn is not possible, unless there is proper funding, 80% say that clients have no faith in traditional financial sources and 53% suggested invoice and ABL as other alternative ways of funding banks.