By Marcus Leach

A report released by Begbies Traynor suggests that an increasing number of UK firms are showing signs of financial distress.

The Red Flag Alert report monitors a series of indicators of company cash woes.

Key findings from the Q4 2010 Red Flag Alert Report:

- 147, 836 UK companies are experiencing ‘significant’ or ‘critical’ financial problems. The first year on year increase in distress for 7 quarters; a 4% increase from 141,527 in Q4 2009, and a 20% increase from 123,361 in Q3 2010.

- Those with ‘critical’ problems owe more than £52.7 billion to creditors, suppliers and service providers.

- A 24% increase in distress on Q3 2010, with more than 61,000 struggling companies in the industries exposed to public sector spending.

- A 17% increase to over 10,000 struggling businesses in retail sector on Q3 2010; while the wholesale sector experienced the largest rise in distress, up 30%.

- Evidence of an increase in actions from trade creditors.

Almost 148,000 UK companies are facing ‘significant’ or ‘critical’ financial problems, whilst those with ‘critical’ problems alone are struggling with nearly £53 billion worth of liabilities, according to the report.

The report, which monitors the early warning signs of company distress, shows a 4% increase to 147,836 companies which experienced ‘significant’ or ‘critical’ financial distress in Q4 2010, compared to 141,527 companies in Q4 2009, representing the first year on year increase for seven quarters. The 147,836 companies also represented a 20% increase from 123,361 in Q3 2010, which was considerably more pronounced than the usual seasonal increase as seen this time last year (the number of companies increased by 6% from Q3 2009 to Q4 2009).

Whilst these figures are heavily weighted to the less severe category of companies facing ‘significant’ problems (representing 144,818 companies in Q4 2010), the data shows a marked increase in actions taken by trade creditors against their debtors.

The 3,018 companies experiencing ‘critical’ financial problems alone owe a total of £52.7 billion to creditors, suppliers and service providers, which compares to £57.5 billion owed by 2,943 companies in Q3 2010. The decrease in the average size of liabilities, from Q3 to Q4, indicates that a higher proportion of SMEs are suffering increases in financial distress.

"The figures show that UK businesses are demonstrating real signs of distress and that trade creditors are both losing patience with their debtors and in need of collecting cash into their own businesses," Ric Traynor, Executive Chairman of Begbies Traynor Group, said.

"Coming against a backdrop of the largest decline in house prices for a year1, higher inflation, an accelerated decline in business confidence2, and higher unemployment forecasted for 20113, these figures indicate the renewed challenges facing businesses across most industries in 2011, particularly in the SME sector."