Business insolvencies remain stable but smaller firms most at risk

THE latest insolvency figures show that just below 1 per cent of the UK business population failed in May, the same rate as in May 2011.

But the prospect of the economy stabilising was undermined by the fact that there was a slight increase in insolvencies compared to April 2012 and, worryingly, that increase was driven by firms with 25 employees or below.

Information services company Experian’s latest Business Insolvency Index shows 1,841 firms failed during May.

In the West Midlands 142 companies failed during the month, an increase of 5.2% on May 2011.

Max Firth, UK managing director for Experian’s business information services division, said: “By the time a firm grows to six to ten employees, the flexibility it benefited from as a micro business begins to disappear.

“Fixed overheads become greater and cash flow starts to cause more serious issues if not carefully monitored. 

“Our data has shown that historically, the highest insolvencies have consistently been experienced by firms that have between ten and 100 employees. If a good credit management process is not implemented before reaching this size, then a firm may find it significantly harder to keep its head above water as it grows.”

Of the UK’s five biggest sectors (business services, building/construction, property, IT and leisure/hotels), the property sector saw the biggest drop in its rate of insolvencies – from 0.09% in May 2011 to 0.06% in May 2012.

But the non-food retailing sector saw an increase – 0.16% of firms failed during May this year, compared to 12% in May 2011.