A fifth of UK firms that hit the wall last year were toppled by the collapse of a supplier or customer, according to research by insolvency and restructuring body R3.
The research found that the failure of a supplier or customer was the main reason for 20 per cent of corporate liquidation cases in the past 12 months, with late payments for goods and services the main cause behind 23 per cent of cases.
Andrew Tate, president of R3, said that if a company is not paid for its services or is over-reliant on one supplier or customer, things can "go wrong very quickly".
"On the surface, late payment or the failure of another company can seem like factors outside a business' control," he explained. "But there are plenty of steps a business can take to reduce the risks posed by its supply chain and customer base.
"Businesses must not be complacent when it comes to checking who they are trading with. If a business is not paid upfront it is essentially acting as a lender – albeit without the protections a secured lender enjoys. Keeping track of invoices and getting paid is vital."
The percentage of business failures caused by late payments has increased since 2014, when the figure stood at 20 per cent.
The research also found that six per cent of businesses in the UK (113,000 companies) were creditors in an insolvency case in the past year.
"The failure of one company can have a serious knock-on effect. The loss of a major contract or supplier can quickly interrupt a business' cashflow. Both late payment and the 'domino effect' have been identified as leading causes of insolvency by the profession, so more needs to be done to prevent needless financial concerns for businesses," said Tate.
"In this time of uncertainty following the EU referendum, we should be doing everything we can to mitigate problems for the business community, making it easier for UK companies to carry on."
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