Good news on insolvency… but with a cautionary tale

Experian’s latest monthly Business Insolvency index shows that, overall, the level of business insolvency in the UK continues to decline. 0.08% of UK businesses went under in July, down from 0.09% in July 2012. This was the third consecutive month that the rate was lower than the corresponding months last year, the first time this has happened since 2010. Although the rate is marginally higher than in June 2013 (when 0.07% of businesses failed), this is still positive news for the economy.

The longer term trend shows a steady and continuing decrease in insolvency rates. The insolvency rate either dropped or remained stable in 9 out of the 11 UK regions. Scotland, Yorkshire and the West Midlands showed the biggest yearly improvements.

Looking at insolvencies by company size, there were no significant rises amongst smaller companies with up to 100 employees (representing the vast majority of British businesses). Within this group however, businesses with 50-100 employees saw the biggest drop in their insolvency rate from 0.16% in July 2012 to 0.13% in July 2013. Companies with 0-2 employees (representing over 1.5 million small companies) experienced a considerable drop in insolvencies; from 0.07% in July 2012 to 0.06% in 2013.

At the other end of the scale there has been another rise in insolvencies amongst the UK’s largest companies (501+ employees) from 0.08% in 2012 to 0.15% cent this year. Max Firth, Managing Director, Experian Business Information Services, UK&I said: “A whole quarter of dropping insolvency rates is really positive news, but the fact that larger companies have seen quite a rise shows that we are not out of the woods yet, especially as this can trickle down the supply chain to smaller companies.

“Business owners need to remain vigilant and ensure that they have monitoring systems in place, however simple, to ensure they know the financial status of their customers and their suppliers and are able to act quickly if one of them gets into difficulty.”