Business failures reach high levels in IT sector

The IT sector saw business failures increase at a faster rate than the national average in 2006, according to the latest research by market watcher Experian.

Corporate failures in 2006 in the UK hit the highest numbers ever recorded in the past decade, Experian claimed, with overall failures across all sectors increasing by 10.7 per cent in 2006 compared with 2005. The IT sector saw business failures increase by 14.6 per cent in 2006.

According to Experian, fraud played a major role, with more companies falling victim to corporate fraud in 2006.

Breaking down the type of business failures, Experian said receiverships declined by 8.6 per cent, but administration orders went up by 56.3 per cent. Voluntary liquidations were up by 2.7 per cent and compulsory liquidations were up by 6.2 per cent. In addition, voluntary arrangements increased by 2.5 per cent from 2005.

Speaking to CRN, a representative from Experian said: “We are expecting this trend to continue in 2007.”

The representative added that IT firms are failing to put security measures in place when it comes to fighting fraudsters.

“Businesses must make the necessary checks on customers, prospects and suppliers to ensure that they have warnings about those that may have cashflow difficulties,” she said.

Nitin Joshi, founder of business advisory service ChannelMoney, said: “None of the major statistics register partnerships and sole traders that go out of business, both of which are legitimate channel companies. Unfortunately, quite a few of those firms went to the wall in 2006 and will continue to do so this year.

“Channel players need to know how to organise their finances and communicate with suppliers better. They must pursue margin rather than turnover. This is a problem we are increasingly seeing in the retail market, which generally offers no service element.”

Business failures fall in the UK