At the same time the writers' banks are reneging on previously agreed lending arrangements and demanding a reduction in their overdrafts.
Authors most affected are those on what is known as the "mid-list" - writers with four or five published works to their credit who have never been best-sellers but have formerly earned a comfortable living.
The problem has become so acute that the Royal Literary Fund, Britain's oldest and largest literary charity, has handed out a record pounds 468,000 to destitute writers in the past year - more than three times the annual figure during the late 1980s.
The fund, which was founded in 1790, and which has helped some of the greatest names in English literature including Samuel Taylor Coleridge, James Joyce, Angus Wilson and Joseph Conrad, does not divulge the names of people receiving help.
But the secretary of the charity, Fiona Clark, said those applying for grants this year included a number of well-known names, and the average age of applicants was falling.
"The public perception is of published authors receiving huge advances, but this only happens to a small number of writers, and the majority are not having an easy time," she added.
As well as the reduction in advances and the increasing toughness of the banks there is the problem of staff turnover in publishing houses. Some authors find that when the editor they normally deal with leaves, the successor is less keen on their work.
"We have had 150 serious applications for help during the past 12 months, but there were many others we could not consider at all because they were not of recognised literary merit. Others did not proceed . . . because they were too proud to give us details of their personal finances."
A number of factors have plunged the book world into difficulties including the end of the Net Book Agreement (NBA), which set fixed retail prices, and the amalgamation of various publishing houses.
Alan Hollinghurst, short-listed for the 1994 Booker Prize for The Folding Star, helped assess applications for financial help made by writers to another literary organisation, the Society of Authors.
"A lot of people who have successfully published a series of novels are now finding it harder," he said. "But not everybody remains interesting and publishable. Behind this is the assumption that people keep turning out books of a consistent quality. Some writers go off."
Patrick Janson-Smith, publisher of Transworld, which includes the Bantam and Black Swan imprints, said the "journeymen authors" had been worst hit. "There's a lot of authors in this post NBA madness because there's a greater concentration on fewer books.
"Certain writers are finding it very difficult to get published full stop. There's a middle list which is getting whittled away bit by bit because the publishers can't support it."
But the squeeze on the middle ranks has benefited the high-fliers. Christopher Sinclair Stevenson, the agent and publisher who co-runs MSS, an advisory literary agency, said: "While the less-established authors get less and less, the big authors are getting as much or more.'' An average first novelist might easily get only pounds 2,000, he said, and perhaps just double that for a second novel if the first did not sell well. While one of the first novels which periodically electrify the publishing industry - The Horse Whisperer is a good example - can command an advance of pounds 100,000 and above.
Around 3,000 writers a year are therefore going it alone and publishing their own books from the front rooms of their homes. Their efforts have taken the official number of registered British publishers to a record level of more than 30,000.
Martin Amis: pounds 500,000 two-book deal with HarperCollins
Barbara Taylor Bradford: pounds 17m for three-book deal from HarperCollins
Jeffrey Archer: estimated pounds 22m three-book deal with HarperCollins
Michael Ridpath: pounds 1m for for first novel, Born To Trade, from Heinemann
Edwina Currie: pounds 200,000 for first novel, A Parliamentary Affair, from Hodder and Stoughton
Naomi Campbell: pounds 100,000 for first novel, Swan, from OrionReuse content