Number of insolvencies fall

Experian’s Insolvency Index reports that during May, the rate of business insolvencies fell to its lowest point since January 2010 and dropped 18% in May compared to April. The rate of insolvencies fell to 0.08% from 0.10% in April. In May 2009 the rate was 0.10%.

Experian said the improvement was among medium sized businesses with 51 to 100 employees. These saw the rate of insolvencies fall from 0.24% in April 2010 and 0.23% in May 2009, to 0.13% in May 2010 – the lowest point since September 2007.

The average financial strength score of all UK businesses was up year-on-year, from 79.98 during May 2009 to 80.70 in May 2010, but it was down slightly on the 80.76 recorded in April 2010.

Although a small decline, this was the third consecutive month-on-month decline in average financial strength score of all UK businesses.

Business protecting themselves

Rolf Hickmann, Managing Director of pH, an Experian company, said: “The fall in the number of insolvencies is a good sign and shows that businesses are distinctly aware of the current environment and are taking vital steps to protect themselves from risks.

“Apart from the very largest businesses, companies of all sizes saw marked improvements in insolvency rates. However, the greatest improvement came from the medium-sized businesses, which, as we have commented in previous months, have been the hardest hit by the recession.

“However, the small deterioration in the overall financial strength score for UK businesses during May highlights the need for businesses to ensure they continue to exercise caution with regards to their risk exposure and those they choose to deal with.”

Other key highlights include:

• The rate of insolvencies among businesses in the North East saw the biggest fall - down to 0.08% from 0.13% in April 2010 and from 0.15% in May 2009.
• All regions saw their financial strength score improve from May 2010 with Yorkshire seeing the biggest improvement (from 79.24 to 80.81).
• However, looking at the April to May comparison, Scotland was the only region to see its financial strength score increase (from 80.57 to 80.63).
• By far the biggest increase in insolvencies came from businesses with 501 or more employees - from 0.06% in May 2009 and 0.12% in April to 0.16% in May 2010.
• In terms of financial strength, although micro businesses (with 1 to 2 employees) saw the biggest year-on-year improvement (from 80.39 in may 2009 to 81.32), more recent activity reveals a small month-on-month deterioration in their score compared to April (81.95) – the biggest in comparison to other businesses.
• Of the five biggest industries in the UK (business services, building/construction, property, IT and non-food retailing), building/construction saw the biggest April to May improvement (0.18% to 0.14%).
• The property sector saw the biggest month-on-month deterioration in its score (from 82.73 in April to 82.46 in May 2010) and the second biggest year-on-year decline (from 84.05 in May 2009).