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For the first time in two years business failures are in decline, according to
the latest figures from Experian.
Business failures fell by 4.1% to 4,611 in the third quarter of 2006, compared
to the same period in 2005, bringing the total for the year so far to 14,216.
Richard Lloyd, Managing Director of Experian’s Business Information division,
commented: “The improvement in failure rates is well and truly welcomed and it
provides an indication that things are picking up.
"However, when you look at the bigger picture, it is not as clear-cut. During
the year to date, there has actually been an overall increase in business
failure of 4.4% during the first nine months of the year compared to the same
period in 2005.
"This illustrates that a very mixed picture is emerging and until the end of the
year, we won’t know for certain which way the business failure pendulum will
swing.
“The UK suffered its biggest increase in business failures since 1999 during the
first quarter of 2006.
"The slowdown in the rate of business failure began during the second quarter
and has continued with the latest quarter showing an overall fall of 4.1%.
"At the same time, we are also seeing an improvement in the time it takes
businesses, especially large businesses, to pay their bills.
“Whilst the message about the importance of businesses checking the
creditworthiness of their customers and potential prospects is getting through,
you can’t disguise the fact that looking at 2006 so far, business failures are
still on the increase.
"As a result, businesses cannot afford to be complacent and must ensure that
they protect their business and their employees from the threat of insolvency.”
The detail
Looking at the breakdown of business failure in more detail, compulsory
liquidation has fallen by 10.9% compared to the third quarter of 2005.
Receiverships are down 59.4% and voluntary arrangements are down 3.8%.
In contrast, voluntary liquidations are up by 2.5%, and administration orders
have increased by 4.9% compared to the same period in 2005.
However, when looking at the year to date, only receiverships (down 14.1%) and
voluntary arrangements (down 14.8%) have fallen.
All other types of failure, voluntary liquidations (up 1.8%), compulsory
liquidations (up 4.5%) and administration orders (up 25.3%), have all increased
on the same period in 2005.
Sector a analysis
Of the 34 industries surveyed, 15 recorded a fall in corporate failure in the
third quarter of 2006, three remained the same and 16 recorded an increase.
Sectors experiencing a decline in business failures during the third quarter of
2006 included Engineering (down 32.5%), Textiles and Clothing (down 34.6%) and
Post & Telecommunications (down 27.9%).
During this time, increases in failure were most apparent in the Hiring and
Leasing sector (up 95.5%), Food Retailing (up 88.9%), Food Manufacturing (up
44.4%) and Building Materials (up 157%).
The Leisure and Hotels sector was also hit with a 28.7% increase.
he largest number of failures in a single sector was in Business Services – up
11.9% to 980.
Building and Construction saw a fall of 4.6 % to 398 failures recorded.
The year to date
Across all industry sectors, the pattern of business failure was less
encouraging, with only 10 sectors experiencing a fall in business failures
whilst business failures increased in 23 sectors. Only one sector remained the
same.
Amongst the hardest hit were Building Materials (up 123.1%), Food Manufacturing
(up 35.1%), Media (up 20.1%), Food Retailing (up 62.5%) Non-Food Retailing (up
25.9%), Servicing and Repair (up 51.9%) and Business Services (up 22.7%).
Regional analysis
During the third quarter of 2006, rates of corporate failure fell in seven
regions, with the North East cutting its rate of failure in half compared to the
same period in 2005.
Business failures fell in the following regions, listed in order of decline:
North East – down 50%
City of London – down 22.9%
London – down 15.8%%
East Anglia – down 12.8%
West Midlands – down 9.0%
South East – down 3.5%
Northern Ireland – down 3.4%
Business failures increased in the following regions, listed in order of
increase:
Scotland – up 28.7%
South West – up 13.9%
Wales – up 7.0%
North West – up 5.7%
East Midlands – up 4.1%
Yorkshire & the Humber – up 2.2%
Richard Lloyd added: “By taking the necessary credit management 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.”
Source:
RedAlert
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