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Channel insolvencies dip in Q1 but uncertainty remains

Microscope contributor
A slight spike in company failures at the end of last quarter could be a sign that predicted insolvency rises are materialising in the channel, Graydon UK has warned.

According to statistics from the credit reference agency, 61 resellers and distributors went to the wall in Q1 - compared to 64 in 2009 and 54 in 2008 - but nearly half of those went in March.

Historic patterns have shown more businesses run into trouble as economies lift out of recession and Alan Norton, head of intelligence at Graydon UK, said the trend could be emerging.

"This could be the start of insolvency rises as follows the pattern with other recessions," he told MicroScope.

While some resellers were returning to growth, there was a danger of companies running into cash flow difficulties if they over-traded in the post recession climate.

But Norton also pointed to the channel's resilience. "Eighteen months ago, when the economy fell off the edge of a cliff, it was survival of the fittest but many resellers realigned their cost base.The market is mature and businesses are better run."

Nitin Joshi, founder at Channel Money, said many resellers were suffering from the same liquidity issues and over-trading could be suicidal.

"They are strapped for trade credit and banks are still not extending credit to SMEs, this means that when resellers are faced with a growing pipeline of business they are unable to transact so if they are unable to sell, where does that leave them?"

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