By Max Clarke

Credit scarcity and falling consumer spend risk a surge in missed invoice payments, threatening UK businesses.

Research by Graydon UK, the commercial credit-referencing agency, reveals that almost two-thirds of credit and finance professionals questioned believe that the continued lack of finance available to firms could be harmful to the health of their clients’ businesses; whilst almost half are concerned that increasingly cautious consumers will impact on their clients’ ability to settle their bills.

“Cash-strapped consumers are curtailing their spending on non-essential goods as living costs rise and family disposable incomes drop,” explains Gordon Skaljak, a Graydon UK spokesperson.

“At the same time businesses’ finances are coming under pressure as banks tighten up their lending criteria further, and the scaling down of HMRC’s “Time to Pay” scheme means that firms experiencing temporary blips in their cash flow no longer have a safe haven to turn to. Firms may find it increasingly difficult to keep their heads above water, which could also put their suppliers on shaky ground.”

The research also reveals that 31% of companies believe that a lack of credit management procedures within their clients’ businesses is putting their cash flow under threat by leaving them vulnerable to non payment.

Despite concern over their customers’ cash flow, less than half of companies are credit insured, down from 51% last year. Those businesses with credit insurance, however, are insuring a much higher proportion of their business than in 2010 with more than half of businesses with credit insurance securing cover for between 76 and 100% of their business, up from just 27% who were insuring more than three quarters of their business in 2010.

While 39% of respondents reported that their level of credit insurance is higher than last year, a fifth of those without credit insurance report that cover is too expensive and does not offer value for money.

As well as increasing their level of credit insurance, firms are also increasing their use of credit referencing agencies, with 80% reporting that they obtain credit reports on their customers in order to protect themselves from bad debts, up from 65 per cent in 2010. Debt collection agencies are also being employed by firms more frequently, with 47% of respondents reporting that they have turned to debt recovery firms this year, up from 25% in 2010.

Gordon Skaljak added; “There are a number of ways that businesses can protect themselves from the damage caused by late and non-payments. Running regular credit checks is vital for businesses and it will mean that businesses will be alert to any changes in their customers’ circumstances that could lead to non-payment in the future. Expecting customers to pay their bills on time because they have done so in the past can leave businesses vulnerable and so undertaking regular credit checks on customers is essential for protecting your business from bad debts, and ultimately, insolvency.”

“It’s also important that businesses build up a strong credit rating in order to be able to secure alternative sources of funding quickly should their cash flow take a hit. Bank lending remains thin on the ground and there have been cases when lenders have withdrawn funding to businesses experiencing a short term blip, causing them to plunge into insolvency.”

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