County court judgments have risen by 500% over the past two years, signalling further corporate distress in the UK and a rise in company insolvencies.

According to the latest Business Credit Index, published by the Credit Management Research Centre (CMRC) at Leeds University Business School, the early signs of financial stress in the corporate sector are late payments and bad debts.

As the credit crunch bites, professor Nick Wilson of the CMRC said: "The late payment indicators show deterioration in payment behaviour and a higher incidence of bad debts. However, the recent signs of financial stress are signaled by the numbers and values of county court judgments against companies."

The Business Credit Index shows that the number of companies being successfully sued in court for non-payment of bills has rocketed – a sign that the economic slowdown and credit crisis are forcing firms to break the law.

In some sectors, such as retail, property, transport and business services, the number of county court judgments had increased "fivefold" over the past two years.

The rapid rise has prompted the CMRC to predict that insolvencies will rise by "more than 20%" in the next two years to the highest level since the dotcom bubble burst in 2001.

"Firms are under pressure," said professor Wilson. "Given that the majority of businesses in the UK are small to medium enterprises which are already struggling with tighter bank lending policies the prospects for a significant rise in corporate insolvencies is now a reality as the late payment of commercial debt continues to increase."

The forecast is supported by a recent study from accountancy firm BDO Stoy Hayward, which revised its insolvency forecasts for the second time this year from a 12% to an 18% rise in 2008 and warned that no sector would escape the economic downturn.

Other findings in the report include:

• Late payment confidence among UK businesses remains at its lowest point for the last five years.

• Payment from customers beyond the due date has remained stable at 17.3 days in the last quarter.

• Manufacturing companies suffer the longest late payment deals with an average of 22 days overdue.

• On average, debts are being settled after 49 days although manufacturing companies tend to suffer the longest total collection period at 54 days.

• Medium-sized businesses currently have the longest collection period of 55 days, which is 10 days longer than small-sized firms in the sample.