@Risk

Evidence is mounting that the UK is at the mid-point of a ‘W’-shaped recession, so brace yourself for a “deluge” of business failures in 2010, Begbies Traynor, a business recovery and restructuring firm, warned in a report released yesterday.

The report, which focuses on Q3 2009, points out that statistics from recessions over the past 40 years confirm that insolvencies peak between one and two years after GDP stops shrinking. This time around, scarce credit post-recession may intensify this effect, causing a substantial rise in insolvencies during 2010 and into 2011.

Begbies Traynor’s Red Flag Alert system collects daily information and analyzes detrimental data monthly, quarterly, and annually.

“The third quarter Red Flag Alert statistics demonstrate that the UK maybe in the eye of the storm. The well-intentioned government efforts to prop up struggling companies may provide a necessary lifeline in the short-term, but will ultimately prove futile in many cases,” says Ric Traynor, Executive Chairman of Begbies Traynor Group.  “Both banks and trade creditors are also holding off wherever possible in the hope that business fortunes may improve, but Begbies Traynor supports the view of many leading economists that the UK is currently at the midpoint of a ‘W’ shaped recession.”

“Despite the recent UK stock market rally, private equity groups remain on the sidelines, with recently reported UK deals in the third quarter being at their lowest level for 25 years, a clear indication that they believe that the worst is not yet behind us,” he adds. “There is every reason to suggest that the unemployment and insolvency peaks of this recession remain some way off.  Experience of the last four recessions tells us that unemployment levels and corporate and personal insolvencies are lagging indicators, and thus seem certain to rise in 2010.”

In other words, this is not the time to let down your guard in terms of supplier risk management.  Instead, scrutinize your supply chain, particularly those essential suppliers that provide components vital to your operations.

And, be sure to investigate supplier financials from before the recession, as well. We all know that past performance is not an absolute indicator of future success, but a recent study by Experian shows that most businesses that were healthy before the economic downturn remain relatively good credit risks.

Remember: You don’t want to be surprised by a zombie in your supply chain –and based on this latest report from Begbies Traynor, it’s likely that there are still plenty of the “living dead” still out there.