By Claire West

The latest Insolvency Index from Experian, the global information services company, reveals a positive picture in January, with the number of business failures down by more than 10% compared to January 2010.

1,266 businesses failed in January 2011, representing 0.07% of the UK's business community. This compares with 1,426 in January 2010. The strength of the UK's business community also improved year-on-year, with its overall financial strength score improving from 81.16 in January 2010 to 81.49 this year.

Improvement was not seen across the board, however - Wales and the North West saw a year-on-year increase in the rate of business insolvencies. The North West had the highest insolvency rate in January with 0.11% of its business population failing, closely followed by the North East at 0.10%.

In spite of these regional difficulties, neighbouring Yorkshire saw the biggest drop in the rate of insolvencies to 0.06% in January this year. Businesses in the South West meanwhile continued to be the most robust, with the best financial strength score of 83.10 during January 2011.

In January 2011, medium sized businesses (26-50 employees) had the highest rate of insolvencies, at 0.17%, while businesses with 51 to 100 employees had the worst average financial strength score (81.48), although they did see a small year-on-year improvement.

Food retailers suffered the biggest decline in financial strength, dropping from 76.85 in January 2010 to 75.77, leaving it the industry with the lowest score in January 2011. The oil industry unsurprisingly remained the top performing sector in terms of financial strength, leading the way with 85.98.

Max Firth, Managing Director of Experian pH, said: "Our analysis shows that business failure rates are falling steadily and the financial strength of the UK's business community is improving. Our data also shows that the post-recession business population is beginning to increase once again, with the net number of firms trading up by one per cent when compared with last January.

"Irrespective of the environment, firms need to be vigilant and ensure that they have good insight into the financial risks associated with insolvencies among clients and suppliers. With issues from fulfilling increased orders through to late payment, the knowledge of how these will affect cash flow is imperative."