Business failures rise as credit crunch tightens

The number of UK business failures has increased for the first time in more than a year, as the credit crunch tightens its grip on the economy.

According to global data group Experian the number of business collapses increased by 8.5 per cent in the first quarter of 2008, the first increase recorded since the end of 2006.

The first three months of this year saw nearly 4,800 businesses fail, 374 more than the same period in 2007.

The downturn appears to be "gathering pace", according to Tony Pullen, managing director of Experian's Business Information division, with an increase in the number of sectors the group monitors seeing more failures compared with the last quarter of 2007.

Agricultural businesses continue to be badly hit, with banking and financial services, food retailing and clothing also seeing significant failure rates.

Pullen said: "These figures are hugely significant, highlighting the impact the continued credit crunch is having on businesses across the UK. It's the first overall increase in failures that we've seen for 12 months and demonstrates the nervousness there is in the economy.

"The message for businesses right across the board in this uncertain economic environment is clear. They need to exercise caution with regards to their risk exposure and the customers they choose to deal with."

The East Midlands, Northern Ireland and the North West saw the greatest rise in business failures in the first quarter, while the City of London, the South East, the South West and Scotland saw declines in the number of businesses collapsing.

"It's never been more important for companies to ensure they take every step they can to protect themselves," said Pullen, "including checking to see if their customers are taking longer to pay their invoices - not just to themselves but to their other suppliers."

"A sharp increase in payment times should set alarm bells ringing. This doesn't just apply to new customers. The majority of bad debts come from long-standing customers so regular monitoring of the payment trends of your most important customers can mean the different between failure and survival through these very difficult times."