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August 23, 2013

SMEs could face fall-out from corporate failures

The overall business insolvency rate fell to 0.08 per cent in July from 0.09 per cent in July 2012, according to the latest Business Insolvency Index from Experian.

This is the third consecutive month that the rate has fallen year-on-year – the first time this has happened since 2010. However, Experian reports that there has been another rise in insolvencies amongst the UK's largest companies (501+ employees) from 0.08% in 2012 to 0.15% this year.

Max Firth, managing director of Experian Business Information Services, UK&I, said: "A whole quarter of dropping insolvency rates is really positive news, but the fact that larger companies have seen quite a rise shows that we are not out of the woods yet, especially as this can trickle down the supply chain to smaller companies.

"Business owners need to remain vigilant and ensure that they have monitoring systems in place, however simple, to ensure they know the financial status of their customers and their suppliers and are able to act quickly if one of them gets into difficulty."

The insolvency rate either dropped or stayed level in nine out of 11 regions compared to July last year. Outside of Scotland, Yorkshire and the West Midlands showed the biggest yearly improvements. Scotland maintained its low insolvency rate of 0.03% for the eighth month running. Only companies in London and the South East showed a slight rise in their insolvency rate.

There were no significant rises amongst smaller companies with up to 100 employees (the vast majority of British businesses). Within this group, businesses with 50-100 employees saw the biggest drop in their insolvency rate from 0.16% in July 2012 to 0.13% in July 2013. Companies with 0-2 employees (representing over 1.5 million small companies) experienced a considerable drop in insolvencies; from 0.07% in July 2012 to 0.06% in 2013.

In terms of sector performance, four out of the UK's five biggest industries saw a decrease in their insolvency rate compared to July last year, with building and construction leading the pack. Other industries to have seen falls include banking and financial services, motor traders and food retailing. The IT industry showed another slight rise.

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