Bankruptcies fall

Posted on 14 Oct 2010 by The Manufacturer

Eighteen per cent fewer manufacturing companies went bust in the third quarter of 2010 compared to the same period in 2009, according to the Equifax Business Failures Report.

The report revealed a sustained pattern of year on year falls in business failures for each quarter of 2010. Insolvencies among all businesses also went down for the second quarter in a row – a drop of 12.5% from Q2 to Q3.

Looking at the UK picture, the number of failures at 6,646 for the quarter, brings the level of business insolvency closer to that experienced in late 2007 and early 2008 when the credit crunch first took hold of the economy. However there’s a bit of a way to go to reach the levels achieved during the boom years of 2004/2005/2006 when numbers were around 5,500 each quarter.

Key Numbers
• 13.4% year-on-year drop for Q3 2010 for all sectors of the economy
• 7.4% quarter-on-quarter drop for Q3 compared to Q2 2010 for all sectors
• Wholesale saw the best quarter-on-quarter performance (19.4%) and year-on-year (19.7%) sector improvement
• 18.2% year-on-year drop for the manufacturing sector
• Transport & communications performed the worst with a 13.6% increase in failures quarter-on-quarter
• 33.1% year-on-year drop for all sectors of the Scottish economy – the best performing region

“There is no question that the economy is still fragile, and there is much anticipation about the impact of the Government Spending Review and the VAT increase in January” said Nic Beishon, head of Equifax Commercial Information Solutions. “But we are hugely encouraged by our latest analysis of the Business Failures data which suggests a really close focus by all sorts of organisations to keep control on their costs, tackle late payments and bad debts and manage their cash flow.

“Interestingly, the downward trend in failures has been sustained quarter-on-quarter through the year and the manufacturing sector is beginning to reflect this, with a 12.5% drop in insolvencies through Q2 and Q3. Across the UK, Q1 saw a 0.5% drop in failures compared to Q4 2009, followed by a more significant 7% drop in Q2. And business performance for Q3 has sustained this pattern with a 7.4% quarter-on-quarter decline in businesses going bust.”

The Regional Picture
In the regions the strongest performers for Q3 versus Q2 were the West Midlands, showing a 15.7% drop in failures and London with a 14.3% fall in businesses going under.

The East of England, at 13.6% and Yorkshire & Humberside also performed well in Q3, defying any suggestion of a North/South divide in the way the economy is holding up. Indeed, the South East, which generally has performed better in previously difficult times showed only a 6.5% fall in failures.

“Government, businesses and trade organisations right across the country should continue to be buoyed by our latest Business Failures report”, concluded Nic Beishon. “But as the quarter-on-quarter performance in some regions and sectors shows, they can’t afford to take the focus off applying the most stringent credit management processes.

“The importance of monitoring existing customer performance can’t be under-estimated because the knock-on effect of one organisations failure can ripple throughout a region or sector very quickly. By operating best practice and harnessing the power of the latest risk management solutions, firms can minimise the threat of bad debt and secure the future of their own business.”