Channel insolvencies flat in '09 but spike predicted

The number of channel firms going to the wall in 2009 fell marginally on the previous year according to Graydon UK data. However, the credit reference agency has forecast a hike in insolvencies in the post recessionary environment as it suspects some firms will over trade and simply run out of cash.

The number of channel firms going to the wall in 2009 fell marginally on the previous year according to Graydon UK data.

However, the credit reference agency has forecast a hike in insolvencies in the post recessionary environment as it suspects some firms will over trade and simply run out of cash.

The figures reveal that 58 IT firms went bust in Q4 compared to 60 in the previous year; the total for 2009 stood at 258, down from 260 in 2008 but still considerably higher than the 2007 figure of 167.

Many companies across the channel cut their costs quickly to match the economic climate as the downturn materialised, said Graydon UK head of intelligence Alan Norton but he warned: "Overall we are in for a pretty rough ride in 2010."

"Q1 is traditionally when we see a spike. I think we are probably anticipating it more so this year," he said.

"As we come out of recession, a lot of businesses will try to grow too fast too quickly, they will over trade and may not monitor their cash flow," he added.

Personal insolvencies in the UK were up 28% in the third quarter according to the latest figures by the Insolvency Service, and Norton said it was feasible that the industry could see a double digit rise in company failures in 2010.

The insolvency stats for 2009 showed that resellers "are a resilient bunch in general" said Computer 2000 managing director Andy Gass, who believed that the downturn had lessoned working capital requirements of channel businesses.

"The question that will need to be asked when we turn the corner, is how many companies are financed well enough to take advantage of the upturn," he added.

Sales in certain IT sectors fell by as much as 20% in 2009 but many resellers cut their overheads in line with this and have maintained or increased profitability as a percentage of revenues, said Alastair Edwards, principal analyst at Canalys.

"What we've seen is that the channel has managed pretty well during the downturn," he said.



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