Nearly 40% of firms at risk of failing

NEARLY 40% of Irish companies are in danger of going out of business in 2011, leaving behind combined debts of nearly €300 billion, according to new research.

The staggering new figures come from the latest quarterly credit study undertaken by business information and risk agency, Vision-net.

Analysis of accounts from 122,000 companies — currently actively trading — found that 38% “are likely to fail”, resulting in €288bn in bad debts.

The research showed that credit distress levels are particularly prominent in the areas of retail, hotel/restaurants and the motor industry.

Most of the debt comprises of bank loans, while much of it is also unsecured, meaning that creditors will have no immediate ways of recouping the debt. While the study is based on accounts filed over the past three years, the overall bad debt projection is purely based on current year accounts.

“These numbers confirm two difficulties facing the economy — getting paid and getting a loan. The monetary amounts owed are stark. Few businesses can withstand such liabilities and this, in turn, has consequences for trading levels. Crucially, it also influences bank lending decisions and undermines credit availability,” according to Vision-net’s managing director, Christine Cullen.

The latest credit figures from Vision-net mark a significant deterioration — specifically in terms of the percentage of companies at a high risk of going out of business over the next 12 months.

In the hospitality sector, 55% of companies are ranked as high risk. That figure is 44% in the construction sector, 42% in the motor trade and 41% in real estate.

Ms Cullen said: “This is a worrying trend and, unfortunately, the figures are on the increase.

“Companies cannot survive without cash flow. With this level of debt tied up in struggling companies, it enhances risk of bad debt.”

She added that companies urgently need to adopt more rigorous approaches to their debt analysis and should do a thorough assessment of their customers prior to extending any form of service or credit.

“The risk of getting burned is high, particularly with close to 40% of companies struggling to survive,” she said.

“Companies invest so much time, money and emotion to develop a business, yet the same level of input is missing when it comes to evaluating credit prospects. It takes less than a minute and just a few euro to get an up-to-date credit analysis report. This can be the difference, ultimately, between getting paid or not,” she added.

The Vision-net information follows recent calls for the reform of debt and bankruptcy laws.

Small firms lobby group, ISME has also reiterated its call for a mandatory 30-day payment deadline to eradicate the country’s late payments culture. It called the Vision-net forecasts “high”, but agreed that some business casualties will be seen in the New Year.