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Business failures keep on rising

Business failures in the UK rose to 4,720 (2.0%) in the second quarter of 2006 compared to the same period in 2005, bringing the total for the year so far to 9,538.

This is 8.9% more than in the first half of last year, according to the latest figures from Experian, the global information solutions company.

Richard Lloyd, managing director of Experian’s business information division, said: “Although an increase of 2% is less alarming than the previous quarter’s 15% increase, there is no getting away from the fact that in 2006, failures are already up by 8.9% on the previous year and look set to continue to rise.

“Insolvency has been rising since 2004 and we are not expecting this trend to change. With the possibility of a rise in interest rates on the horizon, higher costs, especially for fuel, energy and raw materials, and no improvement in late payment trends, the need for businesses to check the creditworthiness of their customers and potential prospects has never been so pressing.”

Compulsory liquidation has continued to rise, up 4.1% on the second quarter of 2005 and by 14.5% during the first six months of the year. Administration orders are also on the increase – up 22.9% during the second quarter of 2006 and up 37.8% in the first six months of the year, compared to the first six months of 2005.

In contrast, voluntary liquidations fell by 0.8%, voluntary arrangements fell by 15.1% and receiverships fell by 26.7% during the second quarter of 2006. However, during the first six months of the year only voluntary arrangements experienced an overall fall of 19.2%.

Apart from this one exception, increases were right across the board: voluntary liquidations (up 1.5%), compulsory liquidations (up 14.5%), receiverships (up 5.2%) and administration orders (37.8%).

Of the 34 industries surveyed by Experian, 17 recorded an increase in corporate failure in the second quarter of 2006, 14 recorded a fall and four industries remained the same. During this time, increases in failure were most apparent in the property sector (up 42.9%), plastics & rubber (up 88%) and food retailing (up 45.8%).

The largest number of failures in a single sector was in business services – up 26.5% to 1,021. A further 428 failures were recorded in building and construction (up 1.9%).

By region, so far in 2006, only London has seen a fall in corporate failures, by 7.8%. Corporate failures increased in all other regions, with Wales experiencing the highest overall increase of 57.8% in the first six months of the year and 51.5% to 100 in the second quarter.

Outside London, the North West recorded the highest number of failures in the first six months of the year – 1,195 – although they fell by two to 556 in the second quarter.

Lloyd says: “Businesses need to be extra vigilant to the threat of failure and should always carry out regular checks on prospects, new and existing customers and suppliers to check their creditworthiness and potential for business failure.

“By taking these steps, the risk of exposure to business failures and bad debt are significantly reduced and businesses can maximise the savings to be made by using credit information to screen out prospects that are unlikely to pay their bills. If a business is aware that a prospect is likely to go to the wall in less than six months, it is a very unwise business that would waste precious time, effort and money targeting them in the first place. Yet, this happens all the time.”

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