UK firms in Credit Rating Crisis

Monday, June 29th, 2009

Failure to share financial information exacerbates creditworthiness crisis for UK small firms. Nearly two thirds of UK small firms are carrying a credit rating which may negatively affect their ability to obtain credit finance and favourable credit terms from suppliers, according to new research from Graydon UK, a leading credit risk management agency.

Using Graydon UK's credit scoring system, their June 2009 study reveals that 60 per cent of the three million SME businesses analysed were assessed by the agency as being 'High Risk' or 'Above Normal Risk', in terms of defaulting on trade payments or getting into financial difficulties. Just 13 per cent of the companies reviewed were awarded 'Low Risk' ratings by Graydon UK.

While the recession has unquestionably had an adverse impact on the creditworthiness of small firms in the UK, just as much damage has been inflicted by the sheer absence of relevant information on their financial performance. This lack of data is known to damage companies' credit scores, just as it does with personal credit scoring.

This long standing problem results in part from the lack of a central registry in the UK for unincorporated firms to lodge even the most basic details about their existence. Successive governments have also chosen to pass legislation reducing the amount of financial information incorporated companies must file at Companies House.

Politicians will claim that they're supporting business by reducing the red tape burden associated with filing company accounts. However, all the current system serves to achieve is to strangle the flow of credit so desperately needed by UK businesses in order to rejuvenate the economy.

During 2009, both the Institute of Credit Management (ICM) and the Association of British Insurers (ABI) have spoken out publicly about the necessity for UK businesses to share accurate and current information with credit reference agencies and insurers. In February, Philip King, Director General of the ICM, commented that without this information, these agencies will struggle to justify making positive recommendations during the credit rating process.

Companies need to appreciate that sharing current financial information holds the key to seizing more control over the credit recommendation they receive and the credit they can access to help them run their business.

The survey findings also follow the May announcement by Graydon UK and Validis, a web based business accounting data analysis specialist, to launch a new enhanced credit information service for SMEs. The Graydon Enhanced Credit Information Service Powered by Validis, will launch in Summer 2009 and be the first service of its kind to be based on real-time company information.

Companies using the new service will benefit from assessments of their financial strength and viability by banks, credit insurers, factors, suppliers, invoice discounters and ratings agencies being based on validated up to date monthly management accounts.

Our new service will enable creditworthiness assessments to be based on independently validated and current monthly management account information.

Besides enhancing further the overall quality of recommendations made by credit reference agencies, this will go some way to filling the data void that bars access for UK firms to finance and funds.

Read more information on the Graydon Enhanced Credit Information Service.

 

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