David Alexander

There is no avoiding the fact that businesses of all shapes and sizes are going to face complex challenges in the new year, with economic pressures mounting. Last month, the Organisation for Economic Co-operation and Development (OECD) reported that the UK would face the ‘worst downturn of major economies in 2023’ which will inevitably put a squeeze on resources and cash flow for companies and sole traders across every sector.

Last year we saw major retailers such as Made.com and Joules forced to cease trading because of the difficult conditions. And the most recent statistics on corporate insolvencies reflect a similar picture, showing that 265 UK companies went into administration between July and September, up from 176 during the same period in 2021.

For all businesses, the ability to pay invoices – or indeed bills of any kind – and collect payments is becoming more challenging. However, the best advice we can give is to start thinking about cash flow, credit control and debt recovery now, before we enter the depths of a recession.

As we start a new year, anyone feeling the pinch could benefit from speaking to suppliers or contractors you owe money to and being upfront about your situation. More often than not, you will find they appreciate the transparency and will try to work with you as far as they can. It might seem like a daunting prospect, but pick up the phone and start the conversation before it gets to the point of litigation.

On the other hand, it is imperative that business owners do as much as they can to safeguard jobs and protect their staff from the impact of the economic crisis. This includes taking appropriate action to recover any monies owed and keep the business afloat, particularly as reserves could start to shrink in the new year. It is essential to act quickly, and instruct your legal team as required, particularly in more straightforward instances where there are no underlying issues or disputes to resolve.

Our team has been making good recoveries recently, with business owners looking ahead and tightening their belts. But, we expect the ability to recover funds to change drastically in the coming weeks and months. While the start of the year can always come with challenges, 2023 could sadly be make or break for some Scottish SMEs.

Additionally, September’s reduction to the limit for sequestration proceedings – from £10,000 to £5,000, after being increased during the pandemic – could lead to a wave of smaller firms and business owners in Scotland being made bankrupt. Supply chain industries such as construction, which has the most self-employed workers in the UK, could be the most impacted by this change and it will inevitably have a knock-on effect on debtor books, payments and invoicing.

Unfortunately, rising fuel costs have had a brutal effect on business owners and the impact of high inflation, the hangover from Brexit, and expensive bills to pay are only likely to cause further stresses next year. It can be a vicious cycle, particularly in sectors heavily reliant on contractors and supply chains, but professional advice could be a much-needed lifeline for struggling companies on both sides of the table – whether you are seeking to recover debts or trying to repay.

David Alexander is head of debt recovery at full-service law firm Gilson Gray