Hidden business debt cost UK economy £4.7bn a year

Hidden business debt cost UK economy £4.7bn a year

Global information services company Experian has today published its latest BusinessIQ analysis suggesting that an average of £4.7billion in unpaid debt may be left behind every year by UK firms that simply choose to close down.

The analysis reveals for the first time that among the business closures that were until today thought to be benign, billions of pounds worth of debt is left still owing to existing firms.

Experian looked at millions of supposedly solvent firms that have decided to close down voluntarily and have applied to be struck off the Companies House register since 2000, finding that each year around 13% of these firms had debts that exceeded their total assets just before they closed.

In 2011, according to the analysis, 36,000 companies, hidden among the 300,000 that had wound up voluntarily, had debts amounting to £5.9billion. In comparison, 21,000 firms were declared insolvent during the same year with insolvency practitioners involved and the total estimated debt left behind by them was £11.7billion.  

The study also shows that during the recession the number of firms winding up voluntarily increases significantly.

Max Firth, managing director, Experian Business Information Services, UK&I said: “We have been able to show that hidden among seemingly harmless business closures is a level of debt that has previously gone undetected.

“Failing to detect signs of deterioration and not reacting before a customer or supplier gets to the insolvency or dissolution stage can be crippling for some firms.”

Photo courtesy of Images of Money

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