Worrying figures in the latest Begbies Traynor Red Flag Report today show a surge in the number of firms facing 'significant' or 'critical' financial problems during the last quarter of 2010.
The figures show the number of construction companies in trouble jumped 21% on the previous quarter to 19 167. The figure was also 8% up on levels during the same period in 2009. But it will be smaller companies that bear the brunt of the problem said Ric Traynor, executive chairman of Begbies Traynor Group.
Construction is among the worst hit sectors according to the report that monitors the early warning signs of company distress. Experts are predicting the figures will be followed by a 10% rise in insolvency levels this year.
Traynor said the sectors most likely to be most impacted are already starting to shows definite signs of financial distress. "With confidence in the construction sector falling to an 18-month low, recruitment activity at its slowest for almost a year, and a strong increase in distress in the advertising sector, there is a growing risk that even if the wider UK avoids a double dip recession, public-sector dependent industries face higher levels of financial distress," he said.
Traynor said: "Today's figures show that UK businesses are demonstrating real signs of distress and that trade creditors are both losing patience with their debtors and in need of collecting cash into their own businesses.
"These figures indicate the renewed challenges facing businesses across most industries in 2011, particularly in the SME sector.
"The sectors most reliant on government spending are already feeling the impact of public sector cuts, confirming the financial effects of the recent contraction in the services and construction sectors.
"After seven quarters of declines in the levels of financial distress, these figures show the first evidence of a hardening of creditor attitudes and the real strain being felt by UK companies at this point in the cycle.
"These higher levels of distress would typically be expected to translate into a 10% or greater rise in formal insolvencies in 2011 (compared to an estimated 15% decline in 2010), due to hardening creditor attitudes, the impact of public sector cuts and the gradual unwinding of government support measures."