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27 February 2012 | Angeline Albert
The financial health of UK companies has improved and the number going bust has dropped, according to the latest data from Experian.
The global information services company said today the rate of insolvencies fell from 0.11 per cent in December to 0.07 per cent in January this year. This decrease was led by mid-sized businesses with 101 to 500 employees. And failure rates among these organisations fell from 0.21 per cent in December to 0.10 per cent in January.
The latest Business Insolvency Index also showed an improvement in the financial health of businesses between December and January.
Max Firth, UK managing director for Experian’s business information services division, said: “The fall in the overall rate of insolvencies has taken it back down to the level it was at a year ago, which is certainly positive. January generally tends to be a good month, with many businesses benefiting from the Christmas trade. When coupled with steady improvements in the underlying financial strength of businesses, it means that we can entertain some cautious optimism for the months ahead.”
Experian’s financial strength score predicts the likelihood of a business failing in the next 12 months, with a score of 100 indicating the least likely to fail and a score of one the most likely to fail. It looks at the credit rating of companies, as well as their balance sheet and ability to pay suppliers. Businesses within the building and construction sector saw by far the biggest improvements in financial strength, rising from 77.98 in January 2011 to 82.91 last month.
Of the UK’s five largest industries (business services, building/construction, property, IT and leisure/hotels), property saw the biggest fall in its insolvency rate, from 0.09 per cent in December to 0.04 per cent in January. Property also experienced a year-on-year fall from 0.05 per cent in January 2011.
Firms in Yorkshire led the way with the biggest improvements, from an insolvency rate of 0.15 per cent in December to 0.09 per cent in January. London and the South East went from 0.10 per and 0.11 per cent to 0.05 per cent.
The insolvency rate improved marginally among micro businesses (of one to two employees) and also experienced a month-on-month increase in financial strength, from 84.74 in December to 85.03 in January 2012.