How to reduce risks from the rise of company insolvencies

Company insolvencies are something most business owners would rather not think about. But when a customer or supplier fails, the impact is very real, unpaid invoices, disrupted projects, and sudden pressure on your cash flow. With the UK recording 23,938 company insolvencies in 2025, levels comparable to the 2008 financial crisis, the risk is no longer isolated to struggling firms. Even businesses that appear busy can be under financial strain. Taking a few practical steps to manage insolvency risk can make a meaningful difference to your resilience.

What is insolvency? 

Insolvency happens when a business can no longer meet its financial obligations. In the UK, this usually takes one of two forms:

• Cash flow insolvency: the business has assets, but not enough available cash to pay bills on time.

• Balance sheet insolvency: the business’s liabilities are greater than its assets.

Once a company becomes insolvent, it may enter a formal process. In 2025, Creditors’ Voluntary Liquidations (CVLs) accounted for 77% of cases, but there has been a significant 15% rise in compulsory liquidations. For suppliers, this matters because once insolvency proceedings begin, outstanding invoices are often paid late or not at all. Knowing what insolvency looks like helps you spot warning signs before losses occur.

Why do insolvencies matter to your business?

Businesses with large customers, long payment terms, or complex supply chains are often most exposed. Sectors such as construction, retail, and manufacturing have been particularly affected. Construction alone accounts for around 17% of all UK insolvencies, followed closely by wholesale and retail. When costs are high and cash flow is tight, late payments tend to spread quickly through the economy. In 2025, over 1.5 million businesses reported being affected by late payments. If one business in your supply chain fails, the knock-on effect can easily reach you. Understanding where the risks sit and acting early helps prevent someone else’s financial problems from becoming your own.

Practical ways to reduce insolvency risk

Insolvency risk can’t be removed entirely, but it can be managed. The aim is to reduce how exposed your business is to someone else’s financial problems, while keeping day-to-day operations practical and proportionate.

1. Understand where your biggest financial exposure sits

Risk is rarely spread evenly. Most businesses have a small number of customers or suppliers that carry a disproportionate share of financial or operational importance. Start by mapping:

• Which customers hold the largest unpaid balances

• Which relationships involve long payment terms or high-value contracts

• Which suppliers would be difficult or slow to replace

This exercise helps you focus attention where it matters most, rather than spending time managing low impact risks.

2. Use credit information to spot pressure you can’t see

Financial stress often builds quietly. Credit data helps reveal problems that are not visible from trading activity alone. Looking at company credit scores, limits, and filings allows you to:

• Identify growing pressure before payments are missed

• Sense check decisions to extend credit or take on additional work

• Spot warning signs such as County Court Judgments (CCJs), which indicate that other suppliers or lenders have already taken legal action to recover unpaid debts

• Separate short term delays from deeper financial issues

Used properly, credit information adds context to decisions without replacing your commercial judgment.

3. Limit how much one business failure can affect you

The most damaging insolvencies are not always the largest, they are the ones you are overexposed to. Practical ways to limit impact include:

• Avoiding large unsecured balances with a single customer

• Structuring projects so payments are made in stages

• Reducing exposure when outstanding balances rise faster than payments

These steps don’t stop customers failing, but they prevent one failure from causing serious cash flow problems.

4. Treat payment behaviour as an early warning system

How a business pays often changes before its financial position becomes obvious.

Use payment behaviour to guide action:

• Follow up immediately when payment patterns change

• Confirm revised payment dates and track whether they are met

• Review terms if delays persist or explanations become vague

Consistent follow-up helps distinguish between one-off issues and more serious financial stress.

5. Reduce operational risk from supplier insolvencies

Supplier failure can disrupt projects, delay deliveries, and increase costs with little warning. To reduce the impact:

• Identify suppliers that are critical to your operations

• Monitor their financial stability, especially during long projects

• Plan alternatives for materials, services, or logistics where possible

This preparation helps avoid last-minute decisions under pressure.

6. Keep your own business resilient and credible

A strong financial position gives you more control when others are under strain. This means:

• Holding cash reserves where possible to absorb shocks

• Keeping your business credit profile accurate and reflective of current performance

• Addressing financial pressure early rather than relying on emergency funding

Resilience gives you time to make better decisions, rather than reacting to problems as they arise.

Making insolvency risk easier to manage in once place

No business can eliminate insolvency risk entirely, but it can be made far more manageable. The difference usually comes down to having clear, up-to-date information and using it to guide everyday decisions, who you trade with, how much credit you extend, and when it’s time to take action. The Capitalise platform brings this information together in one place, making it easier to credit check and monitor the health of customers, suppliers, and partners. Alerts highlight changes that may increase your exposure, helping you spot potential issues early, adjust terms, or follow up before a missed payment turns into a loss. 

With insolvencies remaining high, staying informed is less about being cautious and more about staying in control. Clear visibility helps protect cash flow, reduce uncertainty, and gives business owners the confidence to focus on running and growing their business.