The number of businesses declared insolvent in Ireland hit a five-year high in 2023. According to figures from Deloitte Ireland, there were 663 corporate insolvencies last year, the highest number since 2018, and up 25% year-on-year.
While one mitigating factor might be the ending of COVID-era protections aimed at preventing masses of insolvencies during the pandemic, some will seize on rising insolvencies to argue that Ireland is not as immune from challenging global economic headwinds as its giant GDP suggests.
While the country continues to reap a fortune from multinational corporations attracted by Dublin’s low tax policies, the extent to which this lucrative windfall masks the true strength of the domestic economy is open for debate.
The fact that the hospitality and construction sectors have seen a 62% hike in insolvencies will only add fuel to this debate. The Restaurant Association of Ireland (RAI) has been critical of the government on issues ranging from changes to VAT to the fast-tracking of minimum wage increases, arguing that they have heaped additional pressure on businesses already facing financial challenges on multiple fronts.
High interest rates and increased material costs – macroeconomic factors hitting most economies across Europe and beyond – led to the construction industry experiencing five consecutive months of contraction last year.
So with the threat of financial difficulties looming large for more and more businesses, what can you do to fend off trouble? Here are five key steps to take.
For too many businesses, insolvency creeps up on them because they haven’t had a clear enough view of their true financial health. This can be the result of opaque and inefficient record keeping, too many siloed teams or departments controlling budgets, or treating accounts as something you only need to look at come year end. It’s also important to pay heed to warning signs like missing payments that are due.
If there is something in the detail of your finances that causes concern, the worst thing you can do is take a ‘wait and see’ approach. Financial issues are best nipped in the bud, before they have time to grow into something more serious. That invoice deadline you missed could be a sign of cash flow issues – you might be able to solve it with a simple restructuring of your finances. But leave it until another five or 10 invoices have been missed, and suddenly you’re firefighting against a sizeable debt burden.
If you think there is a risk of not being able to settle an invoice in time, talk to the people you owe money to. Creditors get jittery (not to mention frustrated) when their attempts to chase a payment are met with only excuses or silence. This will push them into taking enforcement action sooner. If you have acted early enough and can demonstrate a viable plan for overcoming what is a temporary issue, you’ll find most creditors are more than happy to work with you.
Financial difficulties have a domino effect throughout industry verticals. One business not being able to pay what it owes to its suppliers can plunge another into cash flow problems. Many businesses slip into insolvency as a result of not getting paid what they are owed on time, or at all.
It’s important to stay on top of credit control to maintain as healthy a flow of revenue into your business as possible. Look for repeat offenders who consistently pay late. You are entitled to charge late payment penalties and interest on late payments – tell them you will exercise this. And if it doesn’t change their behaviour, consider cutting ties and looking for more reliable business elsewhere.
Similarly, be wary of lengthy payment terms. If there are any contracts which are causing you difficulties because of the length of time you are waiting between completing work and receiving payment, ask to renegotiate the terms.
Finally, whether you have the earliest inkling of concern about your business’s finances or you think it has slipped into insolvency, the most proactive step you can take is to speak to a corporate recovery specialist. From talking about what you can do to improve financial management to negotiating with creditors and clients on your behalf, qualified accountants and insolvency practitioners have the expertise and experience to guide you to a more successful future.