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Channel facing rough ride as reseller insolvencies spike

Microscope contributor

A spike in insolvencies during Q4 and higher incidence of bad debts hitting distribution last month indicate that the channel could face a rough ride in 2011.

Many resellers and distributors cut costs early on in the recession to counter the slowdown and low interest rates helped highly-geared firms keep on top of monthly repayments.

However, figures from credit reference agency Graydon UK reveal that while insolvencies edged up just 4% in 2010 with 269 businesses collapsing, in Q4 alone 68 IT suppliers went under representing a rise of 17%.

Alan Norton, head of intelligence at Graydon, warned that the last time there was a sharp increase in insolvencies was in 2007, when a swathe of etailers and system builders bit the dust.

"The VAT rise kicking in and falling house prices will contribute to weaker consumer confidence," he said, adding public sector cuts would put further pressure on organisations in the channel.

Last month, distributors faced a rise in bad debts as Dataplex went down owing suppliers £1.5m to £2m.

Andy Gass, senior vice president at Tech Data, agreed there was more bad debt across the channel.

"There does seem to have been a relatively sharp increase in insolvencies over the first few weeks of the year," he said. 

Yesterday the banks finally agreed - after pressure from the government - to provide £190bn in loans to small and medium sized businesses in 2011, £11bn more than last year, with £76bn pledged to SMEs.

The Bank of England held interest rates steady today at 0.5% but Tony Conophy, CFO at Computacenter, expected a small rise from the end of next quarter, saying this would heap pressure on some highly-leveraged firms.

"A lot of small businesses will inevitably disappear," he told MicroScope, "the banking covenants and rules on how much can be borrowed are much stricter, some will need to refinance and that will be tougher than before."


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