Business optimism grows despite increase in corporate insolvencies

BDO monitor business confidence through their “Optimism Index” which hit an all-time high in March 2014. BDO’s interpretation of the result is that business is expecting on-going, solid economic growth for the next 6 months. The UK’s Q1 GDP figures show growth of 0.8% and this brings the size of the UK economy back to within 0.6% of the pre-crisis peak. All looks good and sounds entirely positive.

The Q1 2014 figures from The Insolvency Service showed that liquidations and company voluntary arrangements for companies in England and Wales were up 4.8% on the previous quarter and 4.9% more than Q1 2013. The quarterly figures fluctuate and it is interesting to note that the insolvency figures for each quarter since Q2 2008 have been higher than for any quarter in the 4 years before Q2 2008.

Some of the companies going into administration in the last quarter have been:

  • Lister Petter Ltd – manufacturer of diesel powered generators
  • Internacionale UK Ltd – clothing retailer
  • Albermarle & Bond – pawnbrokers
  • Chalmers of Wells Ltd – fruit and veg wholesalers
  • Norking Aluminium Ltd – aluminium fabricator
  • Whitecroft Essentials Ltd – haberdashery & stationery supplier
  • Matrix Solutions Ltd – construction company.

EY published a report on 8th May 2014 noting that despite growth in the economy, the number of listed companies issuing profits warnings in Q1 2014 was at its highest Q1 level since 2011. Balfour Beatty announced a £30m profit warning and also announced the resignation of the Group CEO.

On a less scientific basis, we at The Channel Partnership hear two different stories which are largely split between those companies who currently have credit insurance and those who do not; those companies with credit insurance tell us that they have concerns that the move from recession to growth causes different problems for businesses – the recession cleared out cash reserves and the potential for growth now has to be funded from limited resources at a time when input costs of material and labour are rising.

Companies with credit insurance are renewing their policies (95% year to date for The Channel Partnership customers) and intend to stick with credit insurance for the long term.Those companies without credit insurance tell us that now the recession is over, they believe the risk of bad debts is reduced and they believe they can effectively manage their own trade credit risk.

Apart from the statistical evidence that the second position is mistaken, it also misses the point that credit insurance allows businesses to grow with security and therefore to maximise the opportunities that a growing economy brings. Credit insurance, properly used, can be viewed as an investment and will deliver a profitable return on that investment even if the policyholder never makes a claim.

Business optimism is a great driver of growth – credit insurance supports business growth and adds security.