For in-depth analysis on wider issues surrounding business credit risk look no further than Graydon’s In Credit blog.

Vicious Circle

28 August 2012

Despite the Office for National Statistics revising up the Q2 GDP figures, the outlook for the UK economy is still bleak. Business chiefs continue to raise concerns and are urging the Government to do more. Chancellor George Osborne is yet again under the spotlight as he defends his austerity measures and growth strategy. He reasoned that cutting public spending and supporting the private sector would encourage businesses to employ more workers and support the wider economy. But this is where the problem lies. How can businesses grow when they lack the confidence and funding to do so? With a recent survey by the Institute of Directors suggesting that business leaders are losing confidence and fear the recession will continue, it is unlikely that they will want to invest and employ more staff. Is the UK stuck in a vicious circle of debt?

Businesses can protect themselves against the late payment of trade invoices, debts and insolvency by regularly undertaking credit checks on their current and potential customers. Regular monitoring allows businesses to identify changes in client's circumstances that are facing pressures on their cash flow and act accordingly.

Companies can also grow by extending trade credit to one another whilst access to funding remains difficult. The ability to showcase financial strengths and potential for sustainable growth is important for achieving this. Companies need to ensure they have reliable, accurate and predictable customer creditworthiness data to enable them to assess risk and make business decisions with confidence.

In the long term, we would like to see the Government push large companies to publish their standard payment terms and the number of suppliers that receive payment within those terms. There is often a pattern with larger firms bullying small suppliers and unilaterally changing payment terms. Better payment practices will allow for better cash flow allowing companies to grow and ultimately contribute to the recovery of the UK economy.

This entry was written by Ranjna, posted on 28 August 2012 Bookmark the permalink. Follow any comments here with the RSS feed for this post. You can post a comment.

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