Insolvencies fall, risks remain

Max Firth

Experian’s monthly Insolvency Index showed improvements in business failure rates across the UK in May 2013. Only the South East saw an increase, and that was a minor one.

Insolvencies in Scotland were just a quarter of the level seen last year. Just 38 businesses went under in May this year, equating to just 0.03% of the active population.  The failure rate for firms north of the border was 0.12% in May last year.

In the North East, failures rates fell from 0.14% to 0.11% of businesses over the same period.

Particularly pleasing is the rate of insolvencies among smaller businesses. The backbone of the UK economy is showing a longer-term change for the better.

The best performance compared to last May was amongst companies with 6-10 people. These businesses saw insolvency rates fall by almost a quarter year-on-year, from 0.20% in May 2012 to 0.16% this year.

The insolvency rate amongst all companies with less than 10 employees (a population of 1.8 million businesses) hasn’t risen for the last four months.

Building and construction firms can also take heart from a drop in insolvencies after a particularly difficult period. Insolvencies for this industry have been falling slowly but steadily over the last 12 months (from 0.18% in May 2012 to 0.14% this year).

Similarly, failures have fallen in the hotel/leisure sector, from 0.16% to 0.11% businesses over the same period.

While lower insolvency rates are indeed a reason to be more optimistic, commerce will always include some element of risk.  Businesses that accurately anticipate the risks that their customers expose them to and get their credit policies in shape are in a far better position.

Read all the insolvency index blogs here