The number of ‘high risk companies’ in the UK has shrunk massively. The new Graydon Risk Barometer shows that in 2007, just before the financial crisis, 16.23 per cent of the 1.7 million active UK companies were so unhealthy financially that they caused a serious business risk.
Now, in 2015, this number has decreased to 9.59 per cent. The reason for this spectacular decrease is that the economic crisis filtered out a lot of the unhealthy companies. Some remain though, hidden by low interest rates.
When the financial crisis was at its peak, in 2008, the number of unhealthy companies rose to over 18 per cent of the total business population.
Alan Norton, Head of Intelligence at Graydon UK says: “Two major factors explain the collapse of the high risk companies. The first is the effect of the financial crisis. This filtered out financially unhealthy companies. The difficult conditions forced many of these companies into insolvency. The Graydon Risk Barometer shows in fact that the crisis had a positive effect on the health of the overall UK economy. The second reason is related to the financial crisis in the sense that financial institutions strengthened their criteria for providing credit. Thus only companies that could prove their financial health could get money to do business. As a result, high risk companies were once again filtered out of the economy.”
The decrease of these high risk companies is positive for the overall UK economy. Norton cautions, “But, despite this, it is still very important to monitor your customers. Any changes in a customer’s behaviour should be noted and appropriate action taken to ensure payment is made and the sale is completed. When interest rates do rise (depending upon the size and speed of the rises) we are anticipating a large increase in high risk companies and increased insolvency rates as a result.”
