Warning of tough times ahead as business failures increase

Consumer and commercial data analyst Equifax has released its latest Business Failures Report, which shows that the Construction and Retail industries are the early victims of the economic slowdown. The firm is urging companies to prepare for the storm of the recession to come following a significant rise in business failures across all sectors.

Equifax Business Failures Report for July has seen a huge year on year increase, total failures in July 2008 rising by 29% compared to the same month last year.

Neil Munroe, External Affairs Director of Equifax commented:

"Perhaps not surprisingly, the Construction sector was the hardest hit in Quarter 2, with failures up 20.3%, compared to same period last year. This reflects the downturn in the sector already widely reported. The Retail sector followed close behind with a year on year increase in businesses going bust of 15.7%. Whilst recent reports had suggested some buoyancy in the consumer retail sector in May, these figures reflect the impact of difficult conditions over a number of months for those retailers unable to manage cashflow against declining sales."


Munroe continues, "We have just seen the British Chamber of Commerce (BCC) warn of a "serious risk" of recession, following its business confidence survey. This is, therefore, no time for complacency in any sector and UK businesses must not lose sight of taking the right steps to manage risk.

"The risk at a time like this is that companies find it harder to gain new funding and pull back on business growth as well as take greater risks with new customers they take on. Plus they feel less confident about chasing outstanding debts. But, clearly, this is exactly the time when more checks need to be put in place - both of new and existing customers. And it's encouraging to see a number of the small business lenders introduce services that will actively help their customers do just that."

Analysing failures regionally shows the North East worst hit with a 30.8% increase in businesses going under, year on year. This is followed by the North West with a 23% increase and the East Midlands close behind on 22.6%. Other regions that saw increases climb were Wales with a year on year rise of 12.3% and the West Midlands at 11.4%.

Businesses in London fared well in Quarter 2 with failures only rising by 1.8% year on year, which was markedly better than Quarter 1 when the Capital saw a 13.9% increase in failures year on year. Yorkshire and Humberside also saw a significant drop in the year on year percentage of failures from April to June (+6.2%), compared to the first three months of the year (+20.3%). However, the South East saw quite a significant rise in year on year failures in the second Quarter. Businesses failing in the region rose by 16.5% in Quarter 2.

Munroe concludes, "The number of businesses failing is rising year on year, although some sectors are affected worse than others, suggesting that some firms are taking the right precautions to protect their future. Businesses need to continue operating best practice and using risk management solutions to minimise the threat of bad debt. The fact is that rigorous credit checks, supported by ongoing monitoring of customers' and suppliers' financial status can go a long way to helping businesses weather the storm.

"It is clear that there are tough times ahead, but firms that use the latest business information and risk management tools will be able to protect themselves from the risk of failure and secure the future of their business."

"It only takes one customer going bust to jeopardise a business, but careful monitoring today, can reduce the threat of bad debt tomorrow."

The findings from Equifax are echoed by information services company Experian, who have revealed that 10,512 UK businesses failed in the first half of the year, a 17.5% increase compared to the same period in 2007.

Tony Pullen, Managing Director of Experian’s Business Information division, comments: “Insolvencies are currently running at their highest level since the final quarter of 2006 and the indications are that the credit squeeze is taking hold across more industry sectors. On top of this, it is also the second quarter-on-quarter increase in failures we have seen. All these factors drive home the need for businesses to look to minimise their exposure to risk and, therefore, the risk of failure themselves.”