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Businesses urged to be cautious despite predicted decrease in company insolvencies in Q3 2012

By CreditMan Wednesday, September 26, 2012

The rate of business insolvencies in the third quarter of 2012 is set to decrease despite the UK economy contracting by 0.7 per cent in the second quarter of this year, according to the latest Graydon UK Insolvency Predictor. This lends weight to the view contended last week by Bank of England Governor Sir Mervyn King that the double dip recession is finally coming to an end.

Based on data published today by commercial credit referencing agency Graydon UK, third quarter company liquidations will decrease by almost 3 per cent (2.8 per cent) compared to the last quarter (Q2), with the year on year decrease of business failures during Q3 being 2.1 per cent.

Businesses in the retail, real estate and hospitality sectors are forecast to experience lower insolvency rates compared with the same period last year (Q3 2011). The wholesale sector is expected to experience a rate of insolvency double that of the projection made across all the sectors for the past year.

Alex Schwendtner, Managing Director, Graydon UK, commented: “Companies need to be cautious as a fall in business failures this quarter should not necessarily be taken as reassurance that we are now out of the economic woods.

“Firms need to consider carefully their exposure to high risk sectors and ask themselves whether their customers operate in a consumer facing sector and whether they are likely to be affected by large scale job losses in the local area. Businesses should also consider their customers’ position in the supply chain, as the farther down the chain a business is, the higher the cost of their products as each supplier will add a margin, leading to margins becoming squeezed at the bottom of the chain as businesses seek to remain competitive.

“At the same time companies must ensure that they guard against the potential damage caused by the late and non-payment of trade invoices as this can have a damaging impact on cash flow and the ability to trade. Firms must monitor the viability of their clients’ businesses on an ongoing basis. Running regular credit checks will ensure that firms are alert to any changes in clients’ circumstances that could lead to non-payment in the future, and ultimately insolvency.”