Pictured above: James Martin

Midland businesses have been warned to keep their eye on their debtors as pressure builds in the economy.

James Martin, a partner in the Birmingham office of corporate recovery specialists Begbies Traynor, said the economy was like a dam with water pressure building up behind it.

"While we have seen fewer insolvencies in the corporate sector in recent weeks, there is clearly pressure building up and there is a danger that some soundly-based businesses could be caught up in the problems of other firms," he said.

Companies that either had problems, or that were seeking to fund their recovery and growth without the support of banks, tended to try to delay payments to suppliers to support their cashflow, he warned.

"Taking an extra couple of weeks or months to pay is a way of keeping hold of cash that you may need to survive or, in the case of growing companies, to fund your own growth."

He cautioned that HMRC's flexibility on payment of PAYE and VAT would come to an end at some point and too many firms had come to rely on this "comfort blanket" as the norm.

"At some point they are going to have to agree a programme to catch up, and this may be at a time when their cashflow is under pressure due to returning business growth.

"Many businesses have not retained any working capital during the past two years, or have used it up just to survive," he said.

There may be particular pressures in the professional sector, he said.

"Partners in some firms may have extracted the maximum cash available in recent years and they may be experiencing problems over working capital.

"They may have to be prepared in some cases to take less out or even in some circumstances replace the funds.

"Whereas in the past white collar firms were seen as a pretty sound bet, banks are taking a longer and a harder look at their financial status.

"We may see that the trend towards mergers and the subsequent cost savings is further encouraged by the banks. Sadly, we may lose some of the small to medium sized firms where they cannot achieve the critical mass required to survive," he said.

Begbies Traynor produces a national quarterly Red Flag Alert report, which since November 2009 has been commercially available to businesses to help them better understand risk and exposure and help prepare them for the future.

Red Flag Alert measures corporate distress signals, drawing on legal and financial data from a wide range of sources for companies that have been trading for over a year.

For more information about Begbies Traynor, please visit their website here: www.begbies-traynorgroup.com