UK businesses were experiencing an increase in financial pressures during the final part of last year.
A study carried out by R3, the trade body, produced an on-the-ground confirmation of official figures that showed the economy shrinking by 0.5 per cent in the last quarter of 2010.
Much of the improved demand that was generated was cancelled by increases in costs.
The Business Distress Index, which measures the financial strains felt by firms, identified important indicators of difficulty in key areas such as the loss of regular customers and cash flow problems in the last quarter of 2010 when compared with the same period a year previously.
Of the 500 businesses polled by R3 during December, a third (32 per cent) reported that loyal customers had ceased placing orders with them. In the three months to September, that figure was 26 per cent.
Up from 49 per cent to 54 per cent was the proportion of firms that saw profits dip, while there was also a rise (14 per cent to 16 per cent) in the numbers of businesses that were struggling to pay invoices on time.
That said, fewer firms were claiming that sales volumes had fallen, which suggested that higher costs were having an adverse effect on profit margins. Businesses could be trading in healthy volumes but at discounted prices.
Problems with the banks raised its head too. The proportion of firms that believed their bank had not been supportive over the last few months climbed from 22 per cent in the previous quarter to 31 per cent.
However, attitudes revealed a more positive note where HM Revenue and Customs (HMRC) was concerned. Many businesses said that their most helpful creditor was the tax authority, evidence that the Time to Pay scheme, which allows distressed firms to re-schedule the payment of taxes, is still an important component of the financial landscape.
Steven Law, the president of R3, commented: “Given that the number of businesses experiencing decreased profits and cash flow difficulties has grown, this may indicate an increase in overheads and other outgoings rather than a decrease in demand.
“But the overall picture suggests businesses are finding conditions more challenging than they were a few months ago.”