Cautious Businesses Survive Credit Crunch

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Banking and financial services and property feel the pinch.

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Certainly, businesses are increasingly aware of the insight they can gain by accessing powerful business information, such as Risk Reports and Ledger360, in order to gain a picture of the financial health of their customer base, credit check customers, reduce their exposure to bad debt and ensure they are getting the best returns on marketing investment.

UK businesses appear to be riding out the credit crunch, and the impact of a tougher borrowing environment has made little impression on corporate failures, according to industry figures released today by Experian®, the global information services company. But, while the majority of industry sectors have escaped with a fall in business failures over the final quarter of 2007, Banking and Financial Services and Property are feeling the pinch.

The number of businesses failing in 2007 declined by 8.9 per cent, or 1,793 fewer failures, compared to 2006. With 4,674 firms going bust, a decline of 20 per cent on the same quarter in 2006, Q4 2007 saw the lowest number of failures recorded since Q3 2006.

Sector analysis
Over the year, there was an increase in business failures in just nine of the 34 sectors Experian monitors, including Building and Construction (up 2.5 per cent); Post and Telecommunications (up 18.9 per cent); Agriculture (up 26.8 per cent); Banking and Financial Services (up 9.8 per cent) and Property (up 9.7 per cent).

Not surprisingly, given the adverse weather last summer affecting crops, outbreaks of foot-and-mouth and bluetongue disease and administrative problems with EU subsidy payments, Agriculture suffered the largest increase in failures with over 25 per cent more businesses (a total of 71) going under in 2007 compared to 2006.

Business Services remains the sector with the highest number of failures, but even these fell by 20.6 per cent in Q4 (to 1,001) and by 8 per cent over the year as a whole (to 3,922).

Commentators have suggested that credit tightening would impact most on fast growing parts of the financial sector and property buyers dependent on cheap credit, and Experian’s figures bear this out. In addition to an increase in failures over the year, both Banking and Financial Services and Property saw an increase in the number of business failures in the final quarter of 2007. Over 130 businesses in the Banking and Financial Services sector failed over the year, an increase of 9.8 per cent, while Q4 2007 saw 42 companies fail, an increase of almost 20 per cent on the same quarter in 2006.

Property saw an 18.7 per cent increase in failures compared to the same quarter 2006 and a 9.7 per cent increase over the year compared to 2006, with 543 failures.

Tony Pullen, Managing Director for Experian’s Business Information division, said: “Given the widespread debate and speculation on the likely negative impact of the credit crunch on businesses, these figures are somewhat surprising. In fact, the credit crunch, more stringent lending terms, higher borrowing costs and general concern about the economy could be encouraging more vigilance and increased caution amongst business managers and owners with regards to cash flow, risk exposure and the customers they choose to deal with.

“Certainly, businesses are increasingly aware of the insight they can gain by accessing powerful business information, such as Risk Reports and Ledger360, in order to gain a picture of the financial health of their customer base, credit check customers, reduce their exposure to bad debt and ensure they are getting the best returns on marketing investment.”

Regional trends
Business failures increased in just two regions in 2007. Northern Ireland experienced a 25.4 per cent increase, while Wales experienced a 3 per cent increase. These two regions, along with the East Midlands, also experienced an increase in business failures over the final quarter of 2007 compared to Q4 2006.

London (including the City of London) experienced the biggest fall in business failures in 2007 compared to 2006 with 1,391 fewer firms failing, a 30.4 per cent drop, and also the biggest fall over the final quarter of the year compared to Q4 2006, with 937 fewer failures, a 53.3 per cent drop.

The full regional breakdown of business failures in 2007 is listed below. Q4 2007 figures are reproduced in brackets:

  •     Northern Ireland - up 25.4 per cent (up 69.2 per cent)
  •     Wales – up 3.0 per cent (up 39.8 per cent)
  •     City of London – down 1.9 per cent (down 21.0 per cent)
  •     West Midlands – down 4.4 per cent (down 2.9 per cent)
  •     Scotland – down 4.4 per cent (down 23.6 per cent)
  •     Yorkshire and the Humber – down 5.4 per cent (down 1.2 per cent)
  •     East Midlands – down 5.6 per cent (up 11.5 per cent)
  •     South East – down 6.4 per cent (down 9.2 per cent)
  •     East Anglia – down 6.5 per cent (down 17.8 per cent)
  •     North West – down 9.9 per cent (down 11.9 per cent)
  •     South West – down 11.6 per cent (down 14.1 per cent)
  •     North East – down 10.7 per cent (down 17.9 per cent)
  •     London – down 34.4 per cent (down 56.2 per cent)

Type of failure
Analysing the type of business failure recorded over the year, the largest decline has come in administration orders, down 28.9 per cent. Other large declines came in the number of businesses seeking voluntary arrangements (down 23.0 per cent) and in those going into receivership (down 21.6 per cent). Voluntary liquidations and compulsory liquidations also decreased, but by a much lower 4.1 and 1.4 per cent respectively.

*For additional information, please see release attachments.

Businesses can visit http://www.experianbi.co.uk for information on how to avoid becoming an insolvency statistic.

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Stephanie Watson
Experian
44 796 684 7821
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