Channel insolvencies drop in Q1

61 resellers hit the wall in the first quarter, according to figures from Graydon

Fewer resellers went under in Q1 than the same quarter last year

Despite a slight drop in the number of insolvencies in the first quarter of the year, channel watchers have warned that the next quarter could be a bumpy ride.

Figures released by credit reference agency Graydon, showed a total of 61 insolvencies in the UK channel in Q1 2010, down on the 64 recorded in Q1 2009.

Alan Norton, head of intelligence at Graydon, said many resellers have learned tough lessons during the downturn, but some may suffer if they take their eye off the ball.
“The next quarter is going to be the interesting one,” he said. “If resellers have over-extended themselves and over-traded, they are going to have cash flow difficulties.

“There is a greater degree of resilience in the channel because the market has matured a bit more and firms are more effectively managing their cost base. But the danger of going for growth is not focusing enough on the bottom line. This is a danger to firms of all sizes, not just the smaller channel players.”

Norton said resellers should focus on keeping lines of communication with suppliers open to ensure they get the best credit lines for their business.

“If you bury your head in the sand you are more likely to get a negative result,” he warned.

Nitin Joshi, founder of ChannelMoney said the amount of consolidation, particularly in the distribution industry, will mean credit insurance is under greater pressure.

“If you have a reseller relying on insured credit lines and the suppliers are told to reduce cover – this is going to have a significant effect on its business because the choice is more limited to start with,” he said.