Business insolvencies reach a two-year peak

The number of firms going out of business reached its highest level for two years in the first quarter of 2012 as the economy hit a “period of stagnation”.

Figures released by the financial services firm RSM Tenon showed that more than 400 companies became insolvent every week. This was a 5% increase on the final quarter of 2011.

The industries hardest hit were business service providers such as IT consultants, designers, and equipment and maintenance suppliers. The sector made up 25% of the 5,600 insolvencies.

Carl Jackson, Head of Recovery at RSM Tenon, believes businesses are feeling the effects of the public spending cuts “as contracts are being held or even shelved”.

RSM Tenon says that private consumers have been spending less due to ongoing job insecurity and a desire to pay off debts. This has had a negative impact on the hospitality industry. The tourism and retail sectors have also felt the impact of the reduction in discretionary spending.

Insolvencies in the retail sector rose by 26% while the hospitality and tourism sectors suffered an 18% increase.

The construction industry represented 17% of the total insolvencies for the quarter, while 7% were from the property services sector. Mr Jackson believes both industries could continue to struggle. “The outlook for both these sectors continues to look difficult for the next 12 months with approximately 36,000 businesses in the construction sector and a further 10,000 in the property sector showing significant signs of distress.”

He fears the competitive nature of the market is proving too much for many firms: “The businesses that supply and support the businesses that will help us get out of the current recession are hitting the buffers and therefore proves we have hit a period of stagnation as the competitive nature of this market takes hold.”

Please contact Deborah Rupping if you would like more information about the issues raised in this article or any aspect of credit control and debt collection.