UK insolvency rate slows

4 March 2011

6 March 2011 |Angeline Albert

The number of UK firms going bust dropped in January by more than 10 per cent when compared to the same month last year.

The latest insolvency index from global information services firm Experian reveals some 1,266 businesses failed in January 2011, down from 1,426 in January 2010. As well as showing a steady fall in the number of business failures, data from Experian shows the financial strength of the UK’s business community is getting better.

The insolvency rate is calculated by comparing the number of businesses that failed with the total business population in the specified area. Yorkshire saw the biggest drop in the rate of insolvencies, from 0.14 per cent in 2010 to 0.06 per cent in January this year.

Experian’s financial strength score predicts the likelihood of a business failing in the next 12 months. A score of 100 indicates least likely to fail, while one means most likely to fail. Businesses in the South West continued to be the most robust, showing a top financial strength score of 83.10 during January 2011. The best-performing sector in terms of financial strength is the oil industry, which led the way with 85.98.

The North West and Wales suffered an increase in the rate of business insolvencies when compared to the previous year. In January 2011, medium sized businesses (26-50 employees) had the highest rate of insolvencies. Food retailers suffered the biggest decline in financial strength, dropping from 76.85 in January 2010 to 75.77 making it the industry with the lowest score.

Max Firth, managing director of Experian pH, said: “Our analysis shows that business failure rates are falling steadily and the financial strength of the UK’s business community is improving. Our data also shows that the post-recession business population is beginning to increase once again.”

But he warned: “Irrespective of the environment, firms need to be vigilant and ensure that they have good insight into the financial risks associated with insolvencies among clients and suppliers. With issues from fulfilling increased orders through to late payment, the knowledge of how these will affect cash flow is imperative.”

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