Retail surgery: Will high-profile insolvencies affect my own business’s credit rating?

Both food and non-food retail industries have struggled so far this year, with the number of business failures rising by 3.4% during the first six month of 2011 compared with the same period in 2010. Moreover, insolvencies in the sector peaked during March 2011 at 166 – the highest since March 2009.

Simon Streat, managing director of Experian’s UK SME business, says: “While the overall financial strength of the retail sector has also fallen, this does not necessarily mean that your own business’s credit rating need suffer. Our research shows that there are robust, well-managed firms with high-growth potential across all sectors – retail is no exception.”

However, there are still a which the recent insolvencies could have a knock-on effect for your business and, if left unaddressed, affect your credit rating and bottom line further down the line.

For example, when a large retailer fails, the knock-on effect can impact you in more ways than one. A big insolvency can leave its many suppliers with unpaid bills. If you also deal with those suppliers, you may find they attempt to reduce payment terms at short notice. They could also start to struggle and subsequently go bust, causing you supply chain issues and leaving you unable to meet your customers’ demands. These scenarios can all impact on your cash flow, your ability to pay your bills and, ultimately, your credit rating and profitability.

As a result, says Streat: “It’s wise to keep an eye not just on your financial strength, but on the credit ratings of key suppliers and customers too, so your business is less exposed to future shocks within the sector.”