Fewer food firms in financial distress, but credit woes persist

By Elaine Watson

- Last updated on GMT

Related tags Cash flow Board of directors Government

Fewer food firms in financial distress, but credit woes persist
The number of UK food and drink manufacturers facing financial distress in the second quarter of 2010 has fallen since the first quarter of the year, new figures reveal.

There was a 16% drop in the number of firms in food and drink production experiencing ‘significant’ or ‘critical’* financial problems in the second quarter of 2010 compared with the first quarter of 2010, according to corporate recovery specialist Begbies Traynor.

But the trade was not out of the woods just yet, said executive chairman Ric Traynor. “Lenient creditor attitudes and temporary government support measures have provided a welcome respite to many companies that may have otherwise found it difficult to survive.

"However, we are concerned that the levels of business distress will increase again, potentially from the first half of 2011, once the full effects of the coalition government’s fiscal tightening measures impact the economy.”

Access to finance

And while the availability of credit to businesses increased in the second quarter (according to the Bank of England’s credit conditions survey), the increase​was "significantly lower than expected”, ​he claimed.

More worryingly, the outlook for corporate credit availability for the third quarter was “at its lowest level since the end of 2008”,​ while there was “growing evidence of less lenient creditor attitudes”.

As reported​ by FoodManufacture.co.uk last month, the government was also applying greater scrutiny to applications for its ‘time to pay’ scheme, which enables firms to ease cash flow problems by deferring tax payments, he observed.

"This increased scrutiny for applications provides an early indication that it is taking a more selective stance towards businesses over their outstanding liabilities with a focus on helping businesses that have a genuine chance of survival.”

Export-led recovery?

He also sounded a note of caution as regards the prospects of an export-led recovery, citing recent weak economic data from China and the US and the challenges facing much of the Eurozone.

“Too many simultaneous domestic austerity programmes amongst G20 countries are leading some economists to question the potential for the UK to heavily rely on exports for growth."

* Begbies Traynor measures 'corporate distress signals' from companies in a range of industries. It classes those with a court action pending and/or poor, insolvent or out-of-date accounts as having 'significant' problems. Those with county court judgements of £5,000 or more and/or wind-up petition-related actions are judged to have 'critical' problems.

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