25 June, 2023
Logistics operators, business support providers, and IT and communications firms are the top three types of businesses most likely to trigger disputes and potential losses for other companies this year, according to Forbes Solicitors.
New analysis of Office for National Statistics (ONS) datasets* by the law firm's commercial litigation team shows the average rate of business deaths from 2020 to 2022. The ONS classifies a 'business death' as the cessation of trading and removal of a company from its list of UK businesses, the Inter-Departmental Business Register.
During the three-year period, the transport and storage sector saw the highest business-death rate at 26.5%, while business and administration and support services experienced a 17.5% business-mortality rate. Information and communications saw the third highest average rate of business deaths at 16%, leaving the supply chains in each of these sectors fragile and at increasing risks of commercial disputes and high levels of bad debt.
Chris Bowers, a partner in Business Dispute Resolution at Forbes Solicitors, said: "Business deaths are often an indicator of far-reaching problems that put other companies at risk. Business mortality can mean unfilled service agreements and payment defaults. In logistics, it can lead to issues retrieving stock held by third parties, while service providers such as IT firms may control access to software that employees rely on.
"Business failures can quickly ripple effect throughout supply chains, making the resolution of problems increasingly complex. If businesses have concerns about suppliers or customers, they are best placed being decisive and acting quickly. It could save them precious time and help to address problems before they risk becoming irrecoverable."
The analysis also found high average business-death rates in the professional, scientific, and technical activities sector (13.5%), accommodation and food services (13.2%) and retail (12.9%).
John Pickervance, a partner and head of commercial at Forbes Solicitors, added: "The business-death rates represent tens of thousands of companies disappearing since 2020. For example, in logistics there has been more than 105,000 business deaths during the period, while retail has seen over 84,000 businesses perish. Millions of pounds in revenue die with these businesses. Last year, the total company turnover for all business deaths was around £77 million.
"It's important that companies take steps to protect themselves against the possible failures of customers and suppliers, especially if they're dealing with organisations operating in sectors with higher business-death rates.
"Credit checks, reviewing terms and conditions, and regular auditing of performance and agreements will help to identify risks. Earlier action can then be taken to address and minimise disputes before a positive resolution becomes out of reach."
*About the data. Forbes Solicitors analysed ONS data including:
1) Business demography, quarterly experimental statistics UK (Quarter 4 Oct - Dec 2022 edition)
2) UK business: activity, size and location including 2022 edition, 2021 edition and 2020 edition datasets
The total number of businesses operating in each sector was averaged across 2020 - 2022, with the total number of business deaths in each sector also averaged across this three-year period. The attached spreadsheet shows the analysis of this data.
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