The latest Insolvency Report and Distress Index from the company's Business Information division also shows that between 1 July and 30 September 2008, 5,957 businesses failed. This represents a 28.2% increase compared to Q3 2007, which saw 4,648 failures.
Tony Pullen, Managing Director of the Business Information division, commented: “Our analysis highlights that businesses, now more than ever, need to know who they are dealing with and that their customers and suppliers have the means to pay.
“Given the difficult trading conditions and rise in insolvencies, it is important that businesses take the right steps to safeguard the supply of their goods and services. The best approach is to continually monitor customers' and suppliers' commercial integrity against financial performance, credit risk information and payment behaviours. Access to this level of insight provides the intelligence to help businesses manage their exposure to risk.”
Of the 34 sectors monitored, 25 saw increases in insolvencies over the year to date compared to the same period in 2007. Meanwhile, seven sectors did not experience an increase in failures in Q3 2008 compared to Q3 2007.
Key sectors affected included Business Services with 1,284 insolvencies in Q3 2008 (up 22.3%) taking the annual total for the sector to more than 3,550 failures (up 17.8%). Building and Construction saw 537 failures over the quarter (up 22.9%) with a year to date total of 1,564 failures (up 19.2%). The Property sector, with 434 failures during the quarter (up 221%) saw its annual figure reach 891 failures (up 130.2%).
All 14 regions monitored by Experian saw an increase in insolvencies in the first nine months of 2008 compared to 2007.
When comparing Q3 2008 and Q3 2007, only two regions - Northern Ireland and East Anglia - experienced a decline in failures. The City of London (up 53.7% at 166 failures), Wales (up 47.6% at 134) and Scotland (up 42.7% at 264) saw the greatest increases in quarter-on- quarter failures.
Outside of London (969 failures) and the South East (1,163 failures), business failures in volume terms are running at their highest in traditional manufacturing regions in the North West, Yorkshire and the Humber and the West Midlands. Failures in the North West increased by over a third to 800 in Q3 2008 compared to the same period last year. In Yorkshire and the Humber, failures rose by a similar amount to 593 and in the West Midlands by 29.1% to 572.
Experian Business Information division uses its comprehensive databases of credit and marketing information on organisations and the people who run them to help businesses to manage the risk and reward of commercial and financial decisions. It has produced a checklist for businesses to help them manage risk and avoid becoming an insolvency casualty.
1. Check the payment trends of existing and potential customers.
Evidence of bills being settled later and later each month is an indicator of a deteriorating cash position within a business. Experian's payment performance information, for instance, is derived from a database that tracks 20 million transactions per month - the equivalent of £12billion of transactions - and used by businesses to identify good and poor payment trends.
2. Address any payment issues with otherwise good customers early on.
To avoid becoming a late payment or bad debt casualty, organisations should also be addressing any issues with otherwise creditworthy and sound business, that simply have a culture of late payment. That means taking steps to encourage faster payment, such as moving customers on to direct payment methods.
3. Look out for late filing of annual returns and financial accounts on a business credit report.
Experian's statistical analysis shows that businesses with poor trading results tend to delay submitting their accounts as long as possible, hence late filing of accounts is often a sign of bad news to come. The analysis also indicates that late filing of the Annual Return, which is a statutorily required list of directors and shareholders, is a characteristic of failing companies. At the very least, late filing of accounts and returns can indicate a level of management inefficiency within the business.
4. Beware of County Court Judgements and other adverse indicators.
In tough times businesses need to be more cautious in terms of who they do business with. Adverse indicators such as the incidence and number of County Court Judgements against a business should be a trigger to exercise some caution and look into the business further before extending credit.
5. Don't forget about the people behind the business.
Taking business information to the next level, for smaller and newly formed companies, blended information, which cross references consumer and business information, can be used to give a picture of the personal and wider business interests and the track record of those running a company. Where financial data is scarce, this can often be the best indicator of the business's likely commercial integrity.
