Is R3's Q1 2026 data showing up across your client portfolio?

R3's latest Quarterly Business Health report, published at the end of April 2026, confirms what most accountants will already be seeing across their client portfolio. More than 1.57 million UK businesses are now carrying overdue invoices, with the total number of overdue invoices rising to 17.48 million in Q1 2026, up 3% on the same period last year.

R3's president Tom Russell called late payments a significant contributor to business failure, noting that mounting arrears can turn manageable cash-flow problems into a wider crisis.

The most impacted sectors

R3 also reported that construction remained the most distressed sector in Q1 2026 with 1,159 insolvency-related cases, followed by wholesale and retail (975) and accommodation and food services (923). Construction is also identified by the Business and Trade Committee as the sector hardest hit by payment delays.

The legal test for cash-flow insolvency is the same across every sector: a company is insolvent if it can't pay its debts as they fall due. What changes is how quickly different businesses reach that point.

Construction companies can be owed substantial sums on retentions and staged invoicing while having no cash to meet payroll, suppliers or HMRC liabilities falling due that month.

Hospitality businesses carry lease commitments and equipment finance that don't move with seasonal revenue.

Wholesale and retail clients pay for stock before it sells, so a stretch in customer payment terms can drain working capital quickly.

In each case, a client whose finances look manageable may already have failed the cash-flow test, with the director's duties shifted accordingly.

Actions that could impact your client in insolvency

Once a company fails either the cash-flow or balance-sheet insolvency test, the director's legal duties shift. They're required to act in the interests of creditors rather than shareholders. Transactions made from that point are reviewable by the insolvency practitioner appointed if a formal process follows.

The patterns most likely to come under scrutiny:

•           Aged debtor balances getting older quarter on quarter, indicating sustained pressure on cash flow that may already have triggered the cash-flow insolvency test

•           HMRC liabilities being prioritised below trade creditors, or vice versa, which can amount to a preference if other creditors are disadvantaged

•           Director's loan accounts moving from credit to overdrawn, or the overdrawn balance climbing, which becomes a recoverable asset in any subsequent liquidation

•           New borrowing taken on while existing liabilities are unpaid, where there was no reasonable prospect of repayment, which can be challenged as wrongful trading

•           Asset disposals at values that don't sit comfortably with market levels, which may be reviewable as transactions at undervalue

•           Repayments to directors, family members or connected parties during a period of creditor pressure, which can be unwound as preferences

A client may not have made any of these decisions with creditor duties in mind. Acts taken in good faith can still be challenged where they look, with hindsight, to have disadvantaged creditors.

When to suggest a conversation with an insolvency practitioner

Signals from client work worth acting on include:

•           Persistent late payment of trade creditors or PAYE, VAT or HMRC liabilities

•           Director's loan account climbing in a period of creditor pressure

•           Repeated reliance on personal funds to meet business commitments

•           New borrowing being used to clear historic liabilities

•           Sector-specific cash-cycle pressure the client hasn't fully recognised

A confidential conversation at that point doesn't commit the client to any process. It gives them a clear read on whether the business has crossed an insolvency threshold, whether their conduct to date is defensible, and what their realistic options are.

If you'd like to discuss a client case, we're here to help. Call our qualified insolvency practitioners on 01908 754666 or email enquiries@ftsrecovery.co.uk for a confidential conversation.