Small IT supplier insolvency rate may rise in 2011

Public sector spending cuts and lack of credit to blame

The number of UK IT companies filing for insolvency fell by almost a third in November, from 63 to 42, according to information services company Experian.

But more may go under in the next 12 months as government financial support is withdrawn and creditors take a tougher stance on lending, say experts.

The IT companies in the Experian report represented only 0.04 per cent of the total number of UK insolvencies in November, indicating that the IT sector is relatively healthy overall, especially compared to other market sectors such as postal and telecoms (0.2 per cent), plastics and rubber (0.16 per cent) and chemicals (0.15 per cent).

Trade body R3 said that 10 per cent of all small companies (up to 150,000) fear they would be vulnerable if they lost government supply contracts. That number is undoubtedly lower for IT firms specifically as the public sector tends to prefer pervasive agreements with larger systems vendors, despite Cabinet Office initiatives to cut more small to medium size enterprises (SMEs) into procurement deals.

Insolvency specialist Begbies Traynor has also predicted that the insolvency rate will rise over the next 12 months as government money disappears and creditors take a harder stance on company debt.