“Cash is king” is an old cliche, but an increasing number of firms are learning just how true it is as insolvency figures surge across England and Wales.

The latest government statistics show there were 5,629 seasonally adjusted corporate insolvencies in the second quarter of the year, an increase of 13 per cent on the first quarter and up 81 per cent on the second quarter last year.

The drivers of this are no great secret, as businesses struggle with staff shortages and rising energy and fuel costs.

Allan Cadman, who is North West chair of the insolvency and restructuring trade body R3, says the figures show the highest levels of corporate insolvency since 2012.

“This has been driven by an increase in all forms of insolvency – but Creditors’ Voluntary Liquidations have peaked to their highest recorded figure of 4,908, suggesting that many directors are opting to close their businesses as they lack confidence in their trading prospects in the current climate,” says Allan.

“The steady rise in compulsory liquidations we’ve seen since the start of the year also suggests that

creditors are now making use of their power to issue winding-up petitions to try and claw back monies they are owed.”

Allan says the rise in insolvencies is being caused by companies’ access to cash being squeezed by rising costs, as well as the withdrawal of Covid support packages and, in some cases, ongoing issues linked to Brexit.

"People are finding it very, very difficult," he says.

"People who have been going through Covid with Bounce Back Loans and the other support have been finding it very tough. The actual return to normality hasn't been smooth.”

He says the raft of measures put in place by the Government may have artificially elongated the lives of some companies that were on their way to insolvency already.

"There were companies that, if you can imagine the pandemic not happening, probably would have failed anyway,” says Allan.

Unfortunately, the future does not bode well either, with the cost of living set to rise, potentially driving consumers to rein in spending with a knock-on effect on businesses.

Allan says it is imperative that business owners who are having difficulty with cash flow seek help from an insolvency professional as soon as possible.

"The advice to everybody is the earlier that you see somebody who's a qualified insolvency professional the more options are left on the table,” he says.

"It may be a simple case of a refinance or something like that to prevent the worst. But there's an apex of the curve when you start going down. Very often people will leave it too late so insolvent liquidation is the only way to go.”

Graham Lamont, chief executive of accountancy and tax and business advice firm Lamont Pridmore, which has offices across the county, says Cumbrian businesses do not tend to be huge borrowers, which puts them in a good position when it comes to avoiding insolvency.

However, he says as firms have begun operating at full speed post-Covid, they may find it difficult to service the debt built up during the pandemic at the same time as covering the growing costs of funding the business day to day.

"Covid borrowing is fine to keep the business going, but once you start having to repay the capital that's when the pressure comes on," he says

Other problems can arise if customers go bust themselves, the cost of servicing a contract grows or a contract is delayed.

“We’ve had a situation during Covid where clients have had customers who have gone bump owing them thousands,” says Graham.

“Also, bizarrely, winning a new contract can cause problems. You might have a 90 day payment period on the contract but you have to supply wages and materials upfront and you can then risk running out of money.”

He says forecasting for future cash flow is vital to avoid slipping into insolvency.

"It's the cash that gets you, it's not the profitability,” he says.

“It's a shortage of cash that closes you down.

"We prepare a lot of management accounts, so that's monthly, quarterly meetings with clients looking at costings, current profitability and then preparing 12 monthly forecasts. You need to look at how costs are going to increase and what you are going to do about it, whether you need to make price increases or cost efficiencies to balance the books.

"The problem when you are in a potential insolvent situation is that legally you can't continue trading unless you're improving the financial situation,” says Graham.

Directors can also be held personally responsible for losses to their company if they knowingly keep running it despite knowing they cannot cover the costs.

"You can work a bit under the bonnet to get it sorted out but then when you run out of improvements to the situation then you've got to consult an insolvency practitioner,” says Graham.

“Technically in that period when you know you're insolvent, and there's no way out of insolvency you can be charged personally for the losses that you've incurred in the company.”

Graham says if people can see insolvency coming it may be possible - although difficult - to sell the company to balance the books.

“Invariably that’s rare,” he says.

“What we tend to say is get out and find other work as soon as you can to replace the work you’ve lost. In that case you could potentially trade out of insolvency.”