Summary

• The UK is experiencing zero economic growth and a sustained rise in company insolvencies, with nearly 2,238 registered in May 2025, which is higher than previous months and years.
• Businesses are facing challenges due to persistent low productivity, investment shortfalls, cost-of-living pressures, and rising operational costs, making insolvency more likely.
• Common signs of a business in financial distress include delayed payments, frequent requests for extended payment terms, changing contact or banking details, unexplained reductions in orders, high staff turnover, and negative media or Companies House reports.
• Early recognition of these warning signs enables suppliers and creditors to have constructive conversations with clients and take preventive steps, such as renegotiating terms or seeking legal advice, before problems escalate into disputes.
• Effective protection strategies include running regular credit checks, drafting robust commercial contracts, monitoring customer communications, and using legal counsel or debt recovery services if insolvency appears imminent.

If you’re under the impression times are getting increasingly tough, Let me assure you that you’re not going mad. The impact of zero economic growth on UK businesses is becoming increasingly obvious. For example, according to Government statistics “the number of registered company insolvencies in England and Wales was 2,238 in May 2025, 8% higher than in April 2025 (2,074) and 15% higher than the same month in the previous year (1,946 in May 2024). Monthly company insolvency numbers in the first five months of 2025 were slightly higher than in 2024 and at a similar level to 2023, which saw a 30-year high annual number of insolvencies.” Given these grim figures, being able to recognise a business in financial distress and business insolvency signs is incredibly important.

But before we look at how to spot the signs, let’s look at why, five years after the Covid-19 pandemic, the economy is about as vibrant as your local funeral directors’ premises.

Why is the UK economy so bad?

First off all, it’s not because British people are lazy so in so’s who spend all day discussing the latest episode of Corrie by the watercooler. According to the Financial Times, UK productivity has been flat since the financial crisis of 2008. There are several reasons for this, including lack of investment, companies not investing in technology, political uncertainty, over-reliance on the financial sector, declining labour participation, and (whisper it), the B-word (Brexit).

Given these and other factors, such as the post-pandemic cost of living crisis and inflation/interest increases, it’s no wonder many organisations are displaying early warning signs of company insolvency.

Here’s how to spot financial red flags in corporate customers.

How do I recognise a business in financial distress?

If one of your B2B customers shows the following signs of cashflow problems, you need to pay immediate attention:

• Payment delays or requests for extended terms.
• Repeated changes in management contacts or banking details.
• Unexplained order amendments or reduced stock levels.
• Frequent disputes over invoices.
• Long delays in replying to phone calls and emails concerning unpaid invoices.
• High staff turnover.
• Media reports, Companies House filings, or industry gossip indicative of trouble.

If you’re reading this and experiencing your stomach dropping because it describes one of your biggest customers to a tee, don’t panic and keep reading to find out what to do next.

Can I prevent a dispute if I recognise a business in financial distress?

If you see clear signs one of your customers or clients is rapidly hitting the economic skids, take some time (although not too much) to think about how to respond. If you have followed all the advice from business books, you’ll know all your customers pretty well, including the one who’s having a hard time. Use this knowledge, plus a little compassion (there but for the Grace…and all that), and have a conversation. Maybe their troubles are temporary and they need to extend their payment terms for a few months. And if it is something more serious, it is best that you know about it as soon as possible so you can act to protect your commercial interests.

How can I protect myself from being impacted by a customer’s insolvency?

With many companies, large and small, finding things challenging, it is always best to have protections in place well before you recognise a business in financial distress. This comes down to simple risk management and due diligence, in the form of:

• Having professionally drafted, clear commercial contracts that include a dispute resolution clause.
• Running credit checks before onboarding a new customer.
• Sending out invoices on time and having a clear follow-up procedure in cases of late payment.
• Getting to know your customers well and speaking to them regularly so you can quickly detect if they are having trouble paying invoices.
• If you believe insolvency is imminent, contact an experienced Business Debt Recovery Solicitor immediately so you have the best chance of securing your interests (in so far as possible) before an Administrator/Liquidator is called in.

Wrapping up

Keeping a close eye on the financial health of your customers/clients can save you from the stress of trying to get paid if they do collapse into insolvency.

To find out more about how our Virtual In-House Legal Counsel can assist you with risk management, including your clients’ insolvency risks and drafting tight, effective commercial contracts, please email us at info@43legal.com or phone 0121 249 2400.

The content of this article is for general information only.  It is not, and should not be taken as, legal advice.  If you require any further information in relation to this article, please contact 43Legal.

FAQs

What are the main signs that a business customer is in financial distress?
Signs include late payments, requests for longer payment terms, frequent changes in business contacts or banking details, reductions in order volume, high employee turnover, and adverse news reports or filings.

Why is the risk of business insolvency currently so high in the UK?
Economic stagnation, historic rises in insolvency rates, low productivity, cost pressures, and external factors like Brexit and the pandemic have severely impacted business stability.

What immediate steps should I take if I spot warning signs in a customer?
Open dialogue with the customer, reassess payment and supply terms, conduct formal credit checks, and seek legal advice to protect your rights if needed.

How can suppliers protect themselves against losses if a customer becomes insolvent?
Set up clear contracts (including dispute clauses), monitor account health, issue invoices promptly, and consult debt recovery or legal professionals early if problems arise.

Does recognising distress always mean ending a business relationship?
Not necessarily; sometimes discussing the issue and renegotiating terms allows the commercial relationship to continue while minimising risk, but vigilance and timely intervention are crucial.

Melissa Danks is the founder of 43Legal. She has over 20 years’ experience as a solicitor working within the legal sector dealing with issues relating to risk management, dispute resolution, and advising in-house counsel in SMEs and large companies. Melissa has extensive expertise in providing practical, valuable, modern legal advice on large commercial projects, joint ventures, data protection and GDPR compliance, franchises, and commercial contracts. She has worked with stakeholders in multiple market sectors, including IT, legal, manufacturing, retail, hospitality, logistics and construction. When not providing legal advice and growing her law firm, Melissa spends her time running, walking in the countryside, reading and enjoying downtime with close friends and family.