Pressures still acute despite drop in corporate insolvencies – Azets

• Latest figures from the Accountant in Bankruptcy (AiB), released just a few hours before the Budget, show there were 250 corporate insolvencies registered in Scotland in the third quarter of 2026, down from 298 cases in the same period last year, a 16% drop. The number of compulsory liquidations fell from 134 to 119 in the quarter to the end of September while creditors’ voluntary liquidations decreased by 20% over the same period.

James Fennessey (pictured), Corporate Insolvency Partner at international accountancy and business advisory group Azets, said: “These latest figures offer some encouragement that the trend is going in the right direction, but it would be premature to interpret them as a sign that conditions have become significantly easier for Scottish businesses.

“While the reduction is welcome, insolvency activity remains high by historic standards, and many companies continue to operate in an exceptionally challenging trading environment. For a significant number of businesses, the pressure on margins, cashflow and profitability has not gone away. In some cases, firms are managing to stay afloat, but that does not necessarily mean they are in a position to invest, grow or build resilience against further economic shocks.

“Businesses are still contending with a combination of high operating costs, persistent inflationary pressures, elevated energy bills and the cumulative impact of rising wages and other overheads. Even where inflation has moderated, the price increases of recent years remain embedded in businesses’ cost bases. Passing those costs on to customers is not always possible, particularly when consumers and other businesses are themselves feeling the squeeze.

“Confidence remains fragile. Uncertainty around the domestic economic outlook, taxation, interest rates and future policy decisions can make businesses reluctant to commit to recruitment, capital investment or expansion. Internationally, geopolitical instability, conflict, supply-chain disruption and uncertainty around global trade continue to create risks for businesses exposed to overseas markets or reliant on imported materials and goods.

“In a Scottish economy that is vulnerable to shocks, these pressures affect different sectors in different ways. In hospitality and retail, businesses are having to balance higher staffing, energy and property costs against customers who are increasingly price-conscious and selective about their spending. Discretionary purchases and eating out can be among the first areas households cut back on when budgets tighten, leaving businesses with limited scope to increase prices without losing trade.

“Construction and related industries face their own challenges, including material and labour costs, project delays and uncertainty over the pipeline of new work. Contractors can find themselves particularly exposed when payments are delayed or the margins agreed on a project are eroded by costs rising during its delivery.

“Manufacturers must contend with energy-intensive operations, input costs and uncertainty in international markets, while transport and logistics operators continue to feel the effects of fuel, wage and vehicle costs. Meanwhile, professional services and other business-to-business providers are not immune: clients may delay projects, reduce spending or extend payment terms, putting pressure on their suppliers’ cashflow.

“For many smaller businesses, the challenge is that these pressures do not arrive in isolation. A relatively modest fall in sales, combined with an unexpected bill or a delayed customer payment, can quickly create a cashflow problem. Businesses that have used up their reserves to navigate previous difficult periods may have little room to absorb another setback.

“The priority for business leaders is to understand their financial position, keep a close eye on cashflow forecasts and act decisively where trading conditions are deteriorating.

“Any business owner concerned about their company’s financial health should seek professional advice at the earliest opportunity. Warning signs can include invoices being paid late, growing tax arrears, tightening cashflow or stock accumulating faster than it can be sold. These may indicate that a business is already under financial strain or is heading in that direction.

“We recognise that confronting financial difficulties can be uncomfortable, but an early conversation can make a material difference. Seeking advice while there is still time to act gives management teams a wider range of options and a better opportunity to stabilise the business and secure a sustainable future. Waiting until the situation becomes critical can severely limit those options and make recovery considerably harder.”

Azets is a UK top 10 accountancy and business advisory firm, with offices in Aberdeen, Ayr, Edinburgh, Glasgow, Inverness and Perth.