D&B now has 36,000 firms rated as being at "high risk" failure over the next 12 months, with the majority of those being smaller and young firms (less than four years of operation).
D&B's director of corporate affairs Damian Karmelich, says the spike in risk downgrades is particularly worrying when compared to last year, when the economy was performing much worse.
In the March quarter of 2009 – when the global economy was facing the greatest crisis in 70 years – D&B downgraded 65,000 firms, far less than the 80,000 downgraded in the first three months of 2010.
"It's a real sign that risk remains and companies can't just look at the macroeconomic numbers and think that happy days are here again."
Kamelich says the main factor behind the downgrades is cashflow, which he says still accounts for 80-90% of collapses.
Recent trade payments data from Dun & Bradstreet shows average payment terms have stretched to 54.1 days in the March 2010 quarter, about a week longer than in the middle of 2009 when economic conditions were much worse.
Ironically, the recovery could have actually caused extra cashflow problems for SMEs.
Karmelich says that as conditions improve and orders pick up, companies need to spend money to increase production and fulfil those orders.
However, they then must typically wait almost 60 days after the order is shipped to get paid.
"What you find is that you have a period of negative cashflow, and it's that negative cashflow that causes the moment of crisis," Karmelich says.
And it's not just struggling companies that get caught up in that cashflow crunch – D&B research shows 46% of profitable firms actually have negative cashflow, putting them at risk of failure.
Another issue that has led to the increase in risk profile downgrades is an increase in the number of directors who have sat on the boards of companies that failed in the past.
D&B data shows that 43% of external administrations in the 2009 financial year involved companies with directors of previously wound-up companies. Overall, D&B estimates directors on the board of a failed company are 250% more likely to be involved in a company collapse in the next 12 months. Those businesses are also nearly twice as likely to default on a trade payment during that period.
"Previous failures impact future failures and we are seeing a number of directors being involved in more entities," Karmelich says.
Kamelich says the post-downturn hangover is similar to what occurred in the year after the dotcom bust downturn, and says companies continue to remain right on top of cashflow.
"It's not just, can this firm pay my bill, it's will they pay in a timely manner?"
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written by jamess, May 21, 2010
written by San Diego Real Estate, May 07, 2011
Maybe I will look up some more info on them.
