Nov 23 2009
A widening gap between the supply and demand for relevant up to date credit information relating to small and medium sized businesses (SMEs) is hampering the prospects for a sustained UK economic recovery says Graydon UK, the commercial credit agency.

According to new research announced today, conducted by Graydon UK based on a sample of 3 million UK SMEs, 62 per cent were deemed to be above normal credit risk in terms of defaulting on trade payments or getting into financial difficulties. This equates to over 2 million UK companies being adjudged to be at an increased risk of falling into financial difficulty over the next year.

Despite the supposed upturn in the UK economy in the last quarter, these latest figures show there has been little improvement in the state of SME creditworthiness during the past five months, with a previous Graydon UK survey, conducted in June, finding a similar proportion (60 per cent) of SMEs assessed as being High Risk or Above Normal Risk.

Commercial lenders and credit insurers are continuing meanwhile to insist that the supply of credit and credit insurance cover is not being restricted unnecessarily. However, a survey this week from the British Chambers of Commerce revealed that 33 per cent of companies claimed that accessing finance had been more difficult over the last three months, compared with 20 per cent when they were last surveyed in June.

According to Graydon UK, this issue is just one of the consequences of a long-term degradation of the information available on companies at Companies House, driven by an ultimately misguided Government focus on reducing the administrative burden placed upon businesses.

Politicians have taken the view that getting rid of legal obligations on Limited companies to file audited full accounts each year outweigh the risk of those companies experiencing difficulties in obtaining access to credit and finance.

Martin Williams, Graydon UK Managing Director, said: Whatever the truth of the claims by the banks that they are continuing to lend to small firms, the fact remains that for many companies, access to finance remains a real obstacle to ensuring a sustained recovery.

In an era of easy credit, the truth was that no one really noticed or cared much about the declining value of available information on businesses at Companies House caused by the introduction of audit thresholds and redefinitions of small, medium and large companies and their respective filing requirements.

Martin Williams continued: But come the credit crunch, banks, credit insurers and trade suppliers suddenly found themselves being forced to tighten lending and credit decisions, without access to financial account information they knew was up to date, verified and entirely trustworthy. This created a rush to find new data sources that would give the confidence to credit granters to underwrite risk in this changed environment.

Now, monthly management accounts have become de rigueur to plug the growing supply gap. Credit insurers, trade suppliers and banks began to request management accounts from buyer risks in far greater numbers in the last 12 months, and if anything, this practice is increasing in intensity today.

Even if management accounts are delivered to requesters, new challenges have to be overcome before decisions can be made. Credit managers and underwriters are having to deal with unstructured, unvalidated monthly accounts, with no year on year comparisons to draw upon. Its not an easy task!

CreditPal, a new service launched recently by Graydon UK and its software development partner Future Route, offers SMEs the chance to upload management accounts to a website, have them validated, then sent on to credit agencies for inclusion in credit reports, with the hope that those accounts will also produce a more positive credit rating. If and when this type of service becomes part of the credit information landscape, CreditPal will owe much to SMEs overcoming their traditional misgivings about making financial figures available to the public.

Martin Williams concluded: Small firms need to stop seeing credit scores as weapons used by large corporates against them, and see them instead as tools to help them gain credit and finance. It is ironic that due to the good work done by the consumer credit agencies over the past decade, individuals in this country know more about how they can access and amend their credit profiles than small businesses do. If smaller companies are going to survive through the ongoing credit crisis, this situation has to change.

To obtain your Graydon Credit Report please go to http://www.creditman.biz/uk/members/products.asp?categoryid=1015