Business Bankruptcy Rates Continue to Rise in 2007

Second quarter numbers continue to reflect trade credit insurer’s forecast

OWINGS MILLS, Md., Aug. 21 /PRNewswire/ — The number of U.S. business
bankruptcies continues to rise in 2007, as the second quarter filings
showed yet another dramatic increase in the number of businesses seeking
protection from creditors. The increase continues to reflect the business
insolvency forecast produced by leading accounts receivable insurer Euler
Hermes ACI earlier this year.
   

According to the U.S. Bankruptcy Courts, 6,705 businesses declared
bankruptcy in the second quarter of 2007. This number shows a series of
upward trends, including:
   
— A 7% increase over the first quarter of 2007
   
— A 38% year-over-year increase from the second quarter of 2006
   
— A 45% increase for the first half of 2007 in comparison to the first
       half of 2006
   

"Businesses today are facing serious headwinds, including a slowing
economy and an increase in the cost of doing business," said Euler Hermes
ACI Chief Economist Daniel C. North, who earlier this year forecasted a 51%
increase in business bankruptcies for 2007. North has said that the three
most serious issues remain the effects of increased energy, raw material,
and labor costs; the effects of monetary policy tightening by the Federal
Reserve in 2004-2006; and the "decimated" housing market and its effects on
consumers and businesses.
   

The housing market’s recent effects on the financial markets have
brought the seriousness of the situation to light, but North has been
tracking — and predicting — the economic impact for nearly a year. "What
first tipped me off was when median prices on existing homes fell for 10
consecutive months on a year-over-year basis, which is an unprecedented
event since house prices almost never fall; they have never fallen for more
than two months in a row in the 38 years that records have been kept," he
said. "This is an obvious sign of a rapidly deflating asset bubble, the
effects of which will continue to be felt for some time to come."
   

According to the Euler Hermes business failures forecast, a return to
30,000 business bankruptcies is expected in 2007. This follows a
spectacular, but one-off, reduction in business failures in 2006, when the
number of corporate insolvencies dropped by 50% due to a 2005 change in
U.S. bankruptcy legislation. North said the disappearance of the impact of
the change in legislation, coupled with the slowing economy and reduced
profits, will bring the bankruptcy numbers to "more normal levels."
   

With business bankruptcy levels increasing, business leaders will need
to be more vigilant regarding their B-to-B accounts receivable by utilizing
accounts receivable management products and services, such as trade credit
insurance and third-party commercial collections.

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