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Channel weathers recession but trouble lies ahead

Paul Kunert

The number of company failures in the channel rose only slightly in the first half of this year despite predictions that the recession would force many out of business.

However, many resellers may be close to using up their cash reserves and after a long tough summer compounded by continued reductions in credit insurance, low working capital may force an increase in insolvencies during H2.

Data sent to MicroScope by credit reference agency Graydon showed a total of 137 businesses went pop in the six months to the end of June, up from 130 a year earlier.

Resellers continue to stand firm in the face of the current market conditions, said Mark Ancell, head of intelligence at Graydon UK: "We were expecting a big rise in bad debts in the channel but clearly that has not materialised."

He did sound a cautionary note though: "Insurers cutting credit lines is having an adverse impact on the market and while distributors are continuing to support resellers, how long that can continue if bad debts rise?"

Many resellers have relied on cash reserves during the last six to nine months as the market slowed down dramatically but according to Bell Microproducts European president John Toal, those reserves are probably running thin.

"Now is the point that many will be running out of cash," said Toal, "so we are more conscious of credit ratings and working with our partners more closely than we were in the first half of the year, and we were pretty sensible then."

The low level of administrations and insolvencies was surprising, said Alastair Edwards, senior analyst at Canalys, but it was "inevitable" that more companies would run into trouble this year.

"How do resellers maintain cash flow when projects are being postponed or split over several quarters rather than deploying in one. This is a financing issue that has driven the downturn which is being reflected in the difficulties that resellers are facing," he said.

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