News

The recession continues

The insolvency of First Quench (owner of Threshers, The Local, Wine Rack, and Haddows) was the first “big name” insolvency for some time – but the recession is continuing to bite and many more corporate failures will inevitably follow.

 The figures released by The Insolvency Service on 6^th November show that company insolvencies (compulsory liquidations & creditors voluntary liquidations) increased in Q3 2009 by 14.6% on the same period a year ago.

 During 2009 there have been a number of measures aimed at reducing the impact of the recession - £200bn of “quantitative easing”, pressure on the publicly owned banks to increase lending to companies and individuals and the HMRC’s Business Payment Support Service that has allowed 215,000 companies to defer £3.79bn of tax liabilities. Despite these measures, the UK is still to emerge from recession and corporate insolvencies have reached a rate of 1 in 114 active companies.

 The concern from a trade credit management perspective is that statistics from recessions over the past 40 years show that insolvencies peak between one and two years after GDP stops shrinking; this would mean that even if the UK emerges from recession in Q4 2009, there is still likely to be an increase in corporate insolvencies during 2010 and into 2011.

 Credit insurance had received a bad press during the early part of the recession as credit insurers came to terms with the rapidly deteriorating economic picture both in the UK and globally. However, insurers are now increasing the amount of credit they are prepared to insure, Sean Purrington of Atradius was quoted in the Daily Telegraph as saying “Atradius is writing more cover – we increased it significantly in August and September, the first time since last October.”

 Avoiding the damage caused by bad debts will be crucial to many companies surviving the recession. Credit insurance does not remove the risk of bad debts, but it does provide a means of managing that risk.