New data from the UK's Insolvency Service show insolvencies are rising at a concerning rate.
The total individual insolvencies increased in the first quarter of the year, reaching the highest quarterly level since Q3 2012.
After an increase of nearly four percent last year, business insolvencies in the UK are expected to rise again this year.
The expected increase is the result of the lingering uncertainty surrounding Brexit impacting business investment, reduced consumer spending power, and higher input cost due to depreciation of the pound sterling.
As a result, any company that exports to the UK needs to be aware of the current environment within its sector and act with caution when conducting business.
Businesses active in the construction, retail, and hospitality sectors are most affected by increasing insolvencies. While insolvencies in these sectors are quite common during a downturn, many of these businesses import products directly from Australian companies.
Businesses must act with caution
Australian exporters cannot solely rely on the previously-strong performance of the UK economy or the previous performance of the organisations they conduct business with during a period when insolvencies have increased.
Businesses must also act with caution even if they are receiving payments on time. Quite often, businesses may pay an organisation they import products from on time, but not pay a number of their smaller, local suppliers.
Keeping up to date with the local sector and being aware of indicators that such activity may be occurring can help Australian exporters receive an early warning that their customers may be approaching insolvency.
Most organisations within the UK are required to provide access to their financial information to their suppliers.
Understand the organisations you’re selling to
As a result, Australian exporters generally have access to more information on their customers in the UK compared to their Australian customers. Exporters should use this information to understand the organisations they’re selling to.
Exporters can also work with organisations in the UK to access information on the state of their sector as well as the state of an overall industry or region.
Gaining access to a broader range of information, which may not always be publicly available, can help exporters react in a timely manner, with some industries potentially more affected by an increase in insolvencies than others.
Exporters should consult with organisations that are on the ground, because they have a greater understanding the UK market and how industries are performing.
Don’t be afraid to ask questions
While they may be unable to visit customers in person as they would an organisation in Australia, exporters need to be aware of the business conditions their customers are dealing with, the position of the customers they are selling to, and requirements they are relying on.
For example, if a customer was relying on strong retail store performance and the information provided showed some retail stores struggling, then exporters would need to ask further questions. Australian exporters must not be afraid to ask questions of their customers in foreign markets; failing to do so could set them up for failure.
Working with a partner on the ground is the least risky way for Australian exporters to approach the UK market in this period of uncertainty.
It’s essential to leverage local knowledge and expertise to avoid becoming a victim of increasing insolvencies in this market.
Mark Hoppe is managing director, Australia and New Zealand, Atradius