MORE businesses in Scotland are facing financial hardship than they were a year ago, leading accountants have said.

A study by insolvency specialists Begbies Traynor found a rise in the number showing the early signs of economic distress compared to last year, especially among supermarket suppliers and independent retailers.

The 'red flag alerts' report said there had been 13,640 instances of firms showing ‘significant’ financial problems between April and June this year, an increase of 8 per cent compared to 2014, with the pace of businesses reporting difficulties increasing since the start of the year.

However, the number of companies facing going out of business had fallen by 42 per cent during the same time, indicating that although many are facing choppy waters, most are pulling through.

Ken Pattullo, group managing partner in Scotland for Begbies Traynor, said that the "warning lights" were flashing for construction companies and those involved in the food and drug retailing and food and beverage manufacturing sectors.

He said: “The critical numbers suggest that there are fewer businesses in severe distress than this time a year ago, and that is obviously a good thing for the immediate state of the economy.

"The bad news outweighs any positives though, as the warning lights are flashing for distress in the coming year, especially for suppliers to the supermarkets and independent retailers in that sector.”

"A massive factor in these rises is the knock on effect that the supermarket battles are having, with suppliers, mostly small and medium enterprises, being squeezed harder and harder in an already very tight margin sector."

He added that a price war being fought by supermarkets had been good for consumers, but had undermined many suppliers who relied on tight margins to make a profit.

Mr Pattullo said: “The very slim margins and high volume of sales involved in supplying to the supermarket giants can mean that relatively small shifts in price, sales or costs can be catastrophic."

The report also said that other sectors of the economy were feeling the pinch, including bars and restaurants, where the reports of financial distress were up by 50 per cent year on year, and the travel and tourism industry, where they had had risen by 21 per cent despite the success of last year’s Commonwealth Games.

However, Colin Boreland, head of external affairs at the Federation of small businesses in Scotland, said that the feeling among members was more upbeat that the report suggested.

He said: "There is no doubt that cashflow is a real concern for businesses. Our members say they are securing contracts and making sales, but are finding it difficult to get paid for what they have done.

"However, while we're not particularly surprised by this report, the latest figures from our members shows that confidence is rising, employment is up and profitability is on the increase. Overall, the outlook is positive."

Liz Cameron,Chief Executive of the Scottish Chambers of Commerce said: “This is not a good indicator highlighting the sensitivities which can quickly adversely affect our economic recovery.

"Governments and businesses need to be very cautious in attempts to drive down costs. We could be reaching a point in some sectors where it drives some of us out of business.

"The Scottish Government have an opportunity now to re-evaluate business rates making them more competitive and fair for all businesses across Scotland. That would help reduce costs and is in their power to do so.

"We should look a bit closer at the other factors which has resulted in the significant increase in financial distress to identify what additional support could be delivered. In some cases this could mean short-term support from their banks”.