As the number of insolvencies drop, firms are warned to not become complacent

Last week, the Insolvency Service published 2010’s second quarter statistics, which show a slight decrease in insolvencies of almost a fifth (19 per cent) compared to the same period in 2009. Company liquidations dropped by almost 10 per cent from the previous quarter.

Although the figures indicate signs of stabilisation in the economy, it is important for businesses not to become complacent, particularly since the recovery is marginal; one in 127 businesses went into liquidation from March to July this year, compared to one in 120 in the previous quarter.

Furthermore, company liquidations marginally increased – up from 4,060 to 4,080 (seasonally adjusted), and the number of voluntary creditors liquidations rose slightly by 5.4 per cent.
Statistics like these further emphasise the importance of credit insurance products such as Lloyds TSB Commercial Finance’s debtor insurance. Over the past few years of economic turbulence, it has become imperative for management teams to protect their firms against bad debt and safeguard invoices if a creditor does become insolvent.

Martin Walmsley, head of debtor insurance at Lloyds TSB Commercial Finance, said: “Although the Q2 figures are encouraging, I urge businesses not to relax their credit control policies following the news that company insolvency is slowly declining.

“Since the only way the base rate can likely go is up, when interest rates do rise, we expect to see more corporate insolvencies. The £5.13 billion of tax payments delayed under HMRC’s Time to Pay scheme may also contribute to this.

Therefore, it is essential that firms are aware of the risks of bad debt as unpaid invoices can destroy a business. Taking out a credit insurance policy should start becoming second nature to firms, in the same way as insuring vehicles and property is.”