LONDON: Information provider, Equifax, has released its Business Failures Report for the second quarter of 2009. The year-on-year comparison is stark, with an overall increase in businesses going bust hitting nearly 40%. But, external affairs director Neil Munroe believes this does not tell the true picture picture of how UK businesses may be starting to recover…

from the sharp downturn which kicked in from the middle of last year.

"In the second quarter of last year, the downturn had only just started to hit companies. I believe it is more relevant to look at how businesses are faring quarter-by-quarter this year.

“Our figures show that overall there was only a 2.2% increase in businesses going under in Q2, compared to Q1. In the construction sector there was a drop in failures quarter-on-quarter of 4.1%.

"The recession is still having an enormous impact on business fortunes. But our figures seem to suggest that we could have hit the bottom by the time we reached the end of the second quarter and, in some areas, there is an improvement, albeit small.”

The next question has to be whether we are going to see the sustained upturn of a ‘V’-shaped recession or whether this is just a pre-summer blip and failures increase again, more typical of ‘W’-shaped recession."

Equifax's latest Business Failures Report follows other signs that the impact of the recession may be starting to lessen, with the British Chamber of Commerce releasing a survey earlier this month that suggested an upturn in confidence amongst British businesses.

Chief findings

Construction sector shows positive signs. The sectors that were hit the earliest and hardest in the recession appear to be starting to turn the corner now.

The retail sector has shown the greatest improvement with an 11.8% quarter-on-quarter drop in failures.

The wholesale sector has also improved quarter-on-quarter, with a 5.1% drop in businesses going under and a 4.1% drop in failures.

Transport and communications saw a 4% drop in failures.

The only sectors which still seem to be struggling are services, with a 10.9% increase in failures quarter-on-quarter and manufacturing, at 2.9%.

The regional picture

The overall picture for business failures for Q2 compared to Q1 suggests that while some regions are struggling, the pace of failures has slowed considerably.

All regions apart from Scotland showed a year-on-year increase in failures. Four regions showed a decreases in companies going under. And no regions showed increases in numbers of more than 10%.

In particular, the North East and Wales showed positive signs of recovery with 14.4% and 10.3% drops in the number of failures for Q2 compared to Q1, although these figures must be put in the context that there were a relatively small number of failing businesses in each region overall.

Yorkshire and Humberside and the North West also saw drops in failures from quarter-to-quarter of 5.3% and 3.5%, respectively.

Both London and the West Midlands saw increases quarter-on-quarter of 9.4%; failures in the South West rose by only 1.9% and in the South East by 1.8%.

Mr Munroe added: "It is also crucial that those businesses that are holding their own take the right precautions to protect themselves from some of the risks of these exceptionally tough trading conditions.

“They need to continue to use rigorous credit checks, alongside ongoing monitoring of the financial status of their customers and suppliers.

"By operating best practice and harnessing the power of the latest risk management solutions, companies can minimise the threat of bad debt and secure the future of their business."