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15 Dec 2011

Rate of business insolvency down despite threat posed to SMEs, RSM Tenon says

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Insolvency rates in the UK hit the lowest rate since the end of 2010 during the third quarter of 2012, but are not a reflection of current trends, a new survey finds.

Corporate insolvencies during the third quarter of this year reached 4,700, a fall of 14 per cent on the previous three month period. While the drop represents progress on the quarter before, and a 17 per cent dip from than the same period in 2011, accountancy firm RSM Tenon says that businesses are still facing ongoing problems which are being masked by current low interest rates.Findings from RSM Tenon’s study show that London, North West and South East make up 51 per cent of all corporate insolvencies in 2012, with 25 per cent, 15 per cent and 12 per cent respectively.

The professional services firm predicts that, despite the fall, insolvencies will reach the same level of 21,000 seen during the past two years in 2012. Chris Ratten, head of restructuring at RSM Tenon, comments, ‘Growth in the UK economy remains flat and we are still living in highly uncertain times.

‘The automotive sector certainly [had] a bad time in October after Ford decided to close its Transit van manufacturing facility in Southampton and Manganese Bronze – the Coventry-based manufacturer of the iconic London black cab – was forced to call in the administrators after a rescue deal could not be found.

RSM Tenon’s insolvency report also picks up on a trend of an increasing number of small and mediums sized companies (SMEs) becoming insolvent due to the current credit and trading conditions being enforced by larger clients.

Payment terms are being pushed out on smaller suppliers, hampering SMEs cashflow, the firm says.

‘SMEs must be open and honest with their clients and ensure that payment terms are agreed upfront and in writing before they become unstuck,’ Ratten adds.

‘It is also important that they look at the financial history of their prospective clients to ensure the likelihood of a bad debt is minimised.’

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