2024 Business Debt Trends and Predictions

Last year presented significant challenges for businesses as we moved beyond the pandemic and adjusted to the withdrawal of government support measures. Alongside this transition, we began to witness the unfolding effects of Brexit on businesses, compounded by the volatility of interest rates and inflation.

These factors collectively gave rise to several trends in business debt, which we will detail. These insights enable us to forecast the trajectory for UK businesses in 2024, with an optimistic outlook for a more prosperous year ahead.

These Trends Emerged in 2023

With the rise of the cost of living crisis and the pandemic moving into the rearview mirror, 2023 has been a year of significant shifts:

• We have observed a notable increase in directors facing issues surrounding joint and several personal guarantees. This trend suggests a shift in how business risks are being shared among directors. However, it brings complex challenges, as each signatory is potentially liable for the full amount of the obligation. Read our article on Joint and Several Personal Guarantees to find out the steps that a creditor will take to recover funds in this scenario.
• This year marked a significant change in HMRC’s approach to debt recovery. There’s been a discernible increase in their use of winding-up petitions against companies with outstanding tax arrears. Last month alone, there were 438 winding-up petitions issued in the UK, of which 69% were issued by HMRC.
• Alarmingly, there’s been a 4% increase in bankruptcies directly linked to personal guarantees. This rise highlights the risks associated with personal guarantees as a tool for business financing.
• With the rise of interest rates, we’ve seen a notable trend impacting property owners and investors. This year, many property owners are falling into arrears due to increased financial pressures, while property portfolios that were once profitable are now struggling to maintain their viability. Consequently, there’s been a significant trend towards property owners unloading their properties in an attempt to mitigate losses and manage escalating costs.

Our Predictions for 2024:

• Continued High-Interest Rates: We expect interest rates to remain elevated, with a new norm forming around the current level. However, there’s a silver lining as we foresee a gradual rise in consumer confidence with the fall in inflation at the latter end of 2023. This resurgence is a beacon of hope for businesses, potentially translating to increased spending and investment opportunities.
• Intensified Creditor Recovery Efforts: With the economic landscape evolving, creditors may adopt more assertive measures in debt recovery. This is expected to be significantly influenced by the involvement of litigation funders. Litigation funders will increasingly finance creditor recovery efforts, particularly in complex or high-value cases. This calls for businesses to be more strategic in financial planning and debt management.
• Closure of ‘Zombie Companies’: The phasing out of pandemic support may lead to an increase in the closure of so-called ‘zombie companies’ – businesses that have been barely surviving. This could reshape various industry sectors, presenting both challenges and opportunities for restructuring and market consolidation. One potential positive outcome is the opening up of market space for more innovative and financially robust companies to thrive.
• Increased Focus on Financial Resilience: With the changing economic environment, there’s likely to be a heightened focus on building financial resilience. Businesses might prioritise cash flow management, cost control, and efficient capital allocation more than ever.

Struggling with business finances? Bell & Company’s team of debt experts is here to help. Reach out to us for tailored guidance and solutions to navigate your financial challenges effectively.