Flat Insolvency Rates Masking Sector Fluctuations

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Company failure rates will remain flat during the second quarter of 2012 but firms supplying the construction, real estate and retail sectors should not be drawn into a false sense of security as they assess the financial risks facing their businesses, according to the latest Graydon UK Insolvency Predictor.

The data, released by commercial credit referencing agency Graydon UK on the 18th of June, indicated there will be a marginal increase of second quarter liquidations (1.4%) on the first three months of 2012, with the year on year increase also being 1.4 per cent. The second quarter figure also represents a fall of 4.8% for the same period in 2010 and 11.6% for 2009. This flattening of the overall rate, however, masks stark differences between industry sectors in the likelihood of businesses hitting the wall.

Projected second quarter failure rates in the construction (up 2.1 per cent), retail (up 2.5 per cent) and real estate (up 5.3 per cent) sectors, sit above the overall projected trend level. (Average rate of increase based on the last 5 quarters – Q1 2011 to Q2 2012)

In practice, this means that companies in construction, retail and real estate are 2.6 times more likely to go under in the present market than those in the other sectors covered by the data, including such support  industries such as those providing accounting, marketing and project management services.

Gordon Skaljak, External Spokesperson, Graydon UK, commented:

“The relatively flat rate of business failures will be welcomed by many company owners, but it does not suggest that a sustained economic recovery is imminent.”

“It’s also clear that companies exposed to the construction, retail and real estate sectors, in particular where companies in the industries are key customers or suppliers, should be proactive in their approach to risk management and make sure they are regularly reviewing the credit status of the businesses they’re interacting with.”

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