News

The Impact of the Recession on business worsens

The figures released today by the DTI demonstrate the heightened risk involved in offering trade credit as the numbers of companies going into liquidation has soared in Q1 2009.

However, it still looks as though there is much worse to come. Equifax and Experian, the business information providers, track company administrations and receiverships as well as liquidations. Equifax report an 18.2% increase in business failures overall for 2008 compared to 2007 and highlight the increase in failures for the last quarter of 2008 – up by 32% against the last quarter of 2007. Equifax also comment that “we are not yet at the turning point of the recession with the numbers of businesses going to the wall highly likely to continue to increase in 2009”

Experian have released figures showing a 78% increase in business failures in January 2009.

Deloitte have also commented on the business failure statistics saying that “things are going to get worse before they get better.

Trade credit insurance has been receiving its share of press coverage as insurers make efforts to continue to provide cover trade credit risk. The credit insurers covered £282 billion of turnover for UK companies in 2007 for total premiums of around £325m. However, claims are now exceeding premium income (£97m of claims were received in Q3 2008) and the insurers have to find a way to achieve some sort of balance as corporate insolvencies increase. The talk is now that the UK Government has recognised the importance of trace credit insurance to the UK economy as is to provide £5bn of support to the insurers. It is believed that this support will be in providing additional credit insurance – possibly matching (and therefore doubling) the insured credit limits available from the UK insurers, for which it will charge an additional premium. The exact details of the scheme have not yet been released.