2012 channel insolvency carnage second worst since 2003

Graydon predicts tough 2013 but says survivors can prosper as competitors fall

Last year saw the second-highest number of channel insolvencies in nine years, according to new figures from Graydon.

The credit reference firm warned that continuing tough market conditions could claim even more victims this year, especially in Q1 as ailing firms finally let go after hanging on over Christmas.

In 2012, some 285 channel businesses hit the wall, a figure only recently topped in 2011, when 356 firms went under. (See graph for annual UK insolvency figures since 2003, according to Graydon. Click to enlarge)

Despite this, the fourth quarter of 2012 saw the fewest firms fail since 2008's Q1, when only 57 went to the wall.

Alan Norton, head of intelligence at Graydon, said final-quarter figures can be boosted by Christmas and are often followed by poor first quarters.

"The traditional Christmas boost means the [number of insolvencies] reaches a higher figure in Q1; firms can make it through Christmas trading and run out of funds in January or February, and we expect the [quarterly figure] to increase in 2013," he added.

Norton pointed to banks' reluctance to finance overdrafts as part of the problem.

"There is a different attitude from the banks. Traditionally, a lot of businesses had big overdrafts, but banks seem not to be offering that so readily in favour of invoice discounts instead," he said.

"In the short term, they can help with cashflow and [firms can] get money earlier than they would waiting to be paid by a customer, but ultimately, banks do charge for this and this erodes profit margins."

Norton, who described the economy as "bumbling along", predicted that this year Dixons could be set to benefit from Comet's demise, and said a similar impact could be felt across the industry as competition fails.

He said: "It is survival of the fittest. Lots of companies which were going to fail already have, and this means more market share for those left who will benefit from less competition. And with fewer start-ups popping up, the number of failures is also slightly lower than it otherwise would be."