Business payment defaults drop in Q2

Positive trends in payment defaults

The latest Claims Data and Payment Practices Barometer report from Atradius has unveiled an optimistic outlook for several UK business sectors. According to the report, the number of claims from UK businesses fell by 17% in the second quarter of 2024 compared to the first quarter. This decline signals a positive shift in payment default trends across various sectors.

The construction industry, in particular, has seen a 28% decrease in payment defaults from Q1 to Q2 2024. This improvement is attributed to the gradual recovery of the economy and enhanced demand for construction materials, food, and transport sectors. For instance, claims in construction materials, food, and transport have dropped by 32%, 31%, and 30% respectively from Q1 to Q2 2024. These reductions reflect an overall economic upturn and improved sector conditions.

Sector-specific insights and challenges

Despite the general positive trend, some sectors continue to grapple with economic challenges. Metals, transport, and paper industries have experienced increased payment defaults. While there was a slight improvement in the transport and paper sectors in the second quarter, they still face pressures that impact their financial stability.

In the consumer durables sector, payment defaults have decreased significantly, with a 29% reduction in H1 2024 and a 42% month-on-month decline from May to June. Retail sales in this sector have shown promising improvements compared to the same period in 2023. However, consumer durables remain fragile, with firms dependent on further economic recovery and consumer spending for sustained growth.

The textiles sector has also shown encouraging signs, with a 39% decrease in payment defaults in the second quarter and an overall decline of 11% from January to June. This sector, often overlooked, is benefitting from reduced inflation and improved consumer confidence, which is critical for its recovery.

Future outlook and expert advice

The Atradius Payment Practices Barometer highlights a 29% increase in invoices paid on time year-on-year, suggesting a positive trend in business payment practices despite ongoing challenges. However, James Burgess, head of commercial and insolvency expert at Atradius, cautions businesses to prepare for continued high interest rates until inflation stabilises.

With an interest rate cut still uncertain, Burgess advises companies to remain vigilant and consider trade credit insurance as a safeguard against insolvency risks.

“It is very encouraging to see the declines in default rates across most sectors, as businesses start to benefit from the gradual uptick in the economy,” Burgess notes. “However, businesses still very much have a battle on their hands, as consumers continue to face high prices, the cost-of-living crisis persists, and we’re still waiting for an interest rate cut to bring down borrowing costs.”

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Emma Cockings Emma is a content editor for Claims Media. Emma is a experienced writer with a background in client-centric personal injury for a major firm. She has attended and reported on multiple brokerage events throughout her career.