UK Insolvency Trends 2025: Key Considerations for Credit Managers 

As UK insolvencies remain high in early 2025, credit managers face an increasingly complex economic landscape. While total company insolvencies fell 7% year-on-year in February 2025, compulsory liquidations surged by 49%, highlighting the growing enforcement actions by creditors and HMRC. These figures show the growing financial pressures on businesses, particularly those in vulnerable sectors, such as construction, retail, hospitality, and manufacturing.

Key economic challenges—such as rising employment costs, high interest rates, and supply chain disruptions—continue to impact businesses. In light of these complexities, credit managers must carefully consider how to adjust their strategies to mitigate risk and strengthen credit policies throughout the year.

One of the most notable trends in 2025 is the sharp increase in compulsory liquidations, which rose by 49% year-on-year in February. This represents the highest level of compulsory liquidations since 2014, highlighting a growing trend of creditor enforcement, particularly from HMRC. The increase in compulsory liquidations contrasts with a 13% decrease in Creditors’ Voluntary Liquidations (CVLs), indicating that businesses are increasingly opting to restructure instead of closing down entirely. However, tax arrears are increasingly contributing to insolvency, with HMRC intensifying efforts to recover unpaid liabilities from distressed businesses. As tax debts accumulate, credit managers should be particularly alert to businesses that may be struggling with unpaid taxes, as these businesses may be at risk of forced liquidation. 

Another significant development affecting businesses in 2025 is the increase in National Insurance contributions, which has a disproportionate impact on small and medium-sized enterprises (SMEs). For many SMEs, payroll is their largest expense, and the rise in employment costs is adding pressure to already strained cash flow. The increased financial burden may lead to redundancies, as businesses are compelled to reduce costs. This raises the credit risk, particularly in sectors with tight margins, such as retail, hospitality, and construction. Credit managers should evaluate their clients’ exposure to rising employment costs, as this could strain their ability to meet financial obligations and, in turn, impact their creditworthiness. 

Certain sectors are facing elevated insolvency rates due to both economic pressures and industry-specific challenges. The construction sector, which accounts for 17% of all insolvencies, remains particularly vulnerable. Firms in this sector are grappling with fixed-price contracts that prevent them from passing on rising costs. Additionally, escalating material costs, project delays, and supply chain disruptions are worsening cash flow issues, making construction companies more likely to face insolvency. In retail and wholesale, which represents 15% of all insolvencies, businesses are grappling with shifting consumer spending habits, including a shift towards online shopping, and higher borrowing and operational costs. Traditional stores are particularly impacted, resulting in store closures and heightened financial distress. 

The hospitality sector, accounting for 15% of all insolvencies, is facing its own set of challenges, including rising wage costs and a reduction in consumer discretionary spending. As margins are tightened, businesses in this sector may struggle to remain profitable, especially amid rising energy costs and ongoing staff shortages. Similarly, the manufacturing sector, which represents 8% of insolvencies, is facing ongoing supply chain disruptions, increasing energy costs, and rising raw material prices. These pressures are placing considerable financial strain on manufacturers, who may struggle to remain competitive or solvent. 

The use of restructuring plans is on the rise, with many businesses opting for this approach over liquidation in an attempt to preserve their operations. A notable restructuring plan to date is Thames Water which was approved in 2025. This serves as a strong example of how well-structured agreements with creditor support can provide stability and avoid the need for liquidation. However, while restructuring can present a viable alternative to liquidation, it must be approached with caution. Some companies may pursue restructuring as a delaying tactic without a clear recovery plan. For credit managers, it is important to evaluate the financial sustainability of businesses undergoing restructuring and to stay alert to the long-term feasibility of these plans.

Credit managers should strengthen their credit risk monitoring by using real-time data to assess clients, particularly those in vulnerable sectors. Tracking payment behaviours, tax liabilities, and cash flow indicators can offer early warning signs of potential financial distress. In addition, credit terms should be adapted for businesses operating in high-risk sectors. Offering shorter repayment periods and requiring additional financial disclosures can help reduce potential losses from clients in weakened financial positions. 

Credit managers should also be on the lookout for early signs of distress, such as sudden requests for extended payment terms, declining order volumes from previously stable clients, or increasing court actions and supplier disputes. Monitoring unpaid liabilities and court judgments or winding-up petitions will help identify businesses that may be experiencing significant financial difficulties. 

Proactively engaging with struggling clients can offer an opportunity to address potential issues before they worsen. Offering restructuring support where viable, while maintaining strong repayment oversight, will help ensure that credit managers protect their positions. Collaborating with legal and finance teams to navigate potential insolvencies is crucial to safeguarding interests and minimising exposure.

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