UK recovery threatened by lack of credit, says EEF

Britain's economic recovery is still being threatened by the lack of credit on offer from banks, a leading manufacturers' organisation reports today, warning that many businesses are actually finding it harder to secure affordable finance than a few months ago.

A survey conducted by the EEF said 47 per cent of firms had seen the cost of finance increase over the past two months, from 44 per cent in the second quarter and 37 per cent in the first. Only 7 per cent of manufacturers said the cost of finance was now falling.

Manufacturers also found the cost of new borrowing was still rising, with banks charging both higher fees and more expensive interest rates.

A third of companies added that the supply of credit had shrunk in recent weeks, though this was an improvement from the second quarter when 42 per cent of businesses warned lines of credit were dwindling. However, small firms, in particular, are being hit by the credit shortage, the EEF said.

Steve Radley, the EEF's director of policy, said that despite action from policymakers, the manufacturing sector's hopes of recovery were being hampered by their credit difficulties. "Despite historically low levels of interest rates and significant intervention by the Government and the Bank of England, credit conditions remain very tight for most manufacturers," he said.

"Given the severe damage done to banks' balance sheets by the recession, this is likely to remain the case for some time and will dampen the recovery as meeting new orders puts increasing pressure on manufacturers' cashflow."

The EEF's warning reflects increasing concern that the inability of banks to lend more to business might prevent the UK from exiting recession or, at the very least, act as a cap on the strength of the recovery.

Source: David Prosser, Business Editor, The Independent

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Small businesses find credit scarce and dear

Businesses are finally finding it easier to get credit, though they are having to pay more for it, the Confederation of British Industry has said.

The business group's quarterly report on access to finance shows that while 10 per cent of firms said the availability of credit had worsened over the three months to the end of July, 27 per cent said it had improved.

The positive balance is the first time this year businesses have reported credit availability easing and will be welcomed by economists and policymakers who believe borrowing restrictions continue to be the chief obstacle to recovery.

Nevertheless, the availability of credit remains patchy, with only larger companies reporting that they were finding it easier to borrow. Small and medium sized enterprises reported a continued decline in credit supply.

Moreover, even those firms that are getting access to credit report that it is costing them more to borrow.

Trade credit insurance, which covers businesses' suppliers against non-payment for their goods, also continues to be difficult for many companies to obtain. Some 57 per cent of businesses said that the availability of this cover had worsened over the past three months, with premiums rising and increasing delays in renewals.

Richard Lambert, director-general of the CBI, pictured below, said: "Smaller and medium sized businesses are still facing challenging credit conditions and have fewer funding options open to them than big companies. We hope that over time their credit supply will improve."

Most of the banks that reported trading figures last week conceded that lending to business had declined during the first half of the year, despite huge political pressure.

Source: The Independent

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Sub prime lender Cattles has said that their research shows that only 27 per cent of UK SMEs credit check new customers

Research by Cattles Invoice Finance says that this is a worrying figure and they believe those that do not check customer credit history are putting their businesses at unnecessary risk.

73 per cent of businesses questioned as part of CIF’s annual business survey admitted that credit checking was not standard procedure when taking on new customers.

Combined with pressures on cashflow and rising levels of business fraud, this poses a substantial and avoidable risk to SMEs at a time when one large fulfilled but unpaid invoice could result in collapse.

Doug Crawford, group managing director at CIF, said: “These figures are concerning. It is never a good idea to take chances with new customers, but it is more important than ever when times are hard to ensure that you are trading with legitimate businesses.

“SMEs should take every opportunity to minimise the risks they face in the current environment, including introducing a policy to credit check every new customer as standard. Legitimate, trustworthy clients will have no reason to question the procedure, and spotting potential problems before taking on new business could make the difference between survival and failure.”

Source: Cattles Invoice Finance

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Only 27% of small and medium-sized companies in the UK are credit checking new customers

Unpaid invoices and a lack of cash flow are two of the main problems experienced by small businesses at the moment, with some firms only one large fulfilled but unpaid invoice away from collapse.

"It is never a good idea to take chances with new customers, but it is more important than ever when times are hard to ensure that you are trading with legitimate businesses," said Doug Crawford, group managing director at Cattles.

"SMEs should take every opportunity to minimise the risks they face in the current environment, including introducing a policy to credit check every new customer as standard."

Source: Cattles Invoice Finance.

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Entrepreneurs seek to set up new bank to bypass crisis

A group of Cambridge entrepreneurs and businessmen are so outraged by the behaviour of the banks that they are setting up their own.

Telecoms guru Dr David Cleevely said: "We are sick to death of the way the banks are operating. They are offering people almost nothing for deposits but charging small businesses up to 15 per cent for their credit facilities. There is something fundamentally wrong." Dr Cleevely, the founder of Cambridge Wireless and Abcam, the world's biggest catalogue for antibodies, is working with a number of businessmen on plans for a bank serving depositors and commerce.

Read more at The Independent - click here.


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Managing your cashflow

‘Cash is king’. It is a cliché – and like many clichés it is true. The reason why most businesses fail is that they run out of cash to pay their bills. They run out of cash because they have failed to keep on top of cashflow.

To keep in control of cashflow businesses need to have the right management information and systems in place – and to act on warning signs before they become problems.

Of course all businesses have systems in place. It is just that in an economic downturn these may need to be tightened, particularly as 8 in 10 businesses say they are seeing an increase in the number of their customers paying late.

Remember being paid – and paid on time – is not a given

• If you are worried about the customer paying on time – or at all – consider stage payments or even cash on delivery to reduce your risk of bad debts
• Set your terms of business before doing business – and put them in writing. You will not be paid in 30 days unless your customers know that’s what you expect
• Do credit checks before doing business – and monitor late payments. If companies are taking longer and longer to pay, find out if there is a problem. Do not wait until they leave you with a bad debt
• Encourage prompt payment. Consider charging interest on late payments (your legal right on debts outstanding after 30 days) or – if your profit margins allow – offering a discount for prompt payment
• Invoice promptly – and once again make payment terms clear
• Check the customer is happy – there may often be a reason for late or non payment. Never give a customer a reason not to pay
• Make it easy for them to pay by offering as many ways of getting paid as you can. BACS payments are fast and attract lower bank charges. Or a standing order can be used if they pay the same amount regularly. With cheques your late payers can always use the excuse “it’s in the post”
• Contact customers to check they received the invoice and then find out when they are going to pay


“The key thing is certainty – knowing when you are going to get paid so that you can adjust your cashflow forecasts accordingly. If you know a customer is going to take 75 days to pay, you can plan ahead. If you expect payment with 30 days and the payment takes 75 days your business risks running out of cash to pay its outgoings – and that is when businesses run into difficulties.”
Phillip King, Director General, Institute of Credit Management.


Smart credit management is…
• Ringing on day 40 to check you will be paid on day 60

Lax credit management is…
• Waiting until day 65 to ask why you were not paid on day 60

Getting it right
• Many businesses concentrate on getting orders in, but getting paid should also be a priority

Communication is key

• At times like this you need to cement your key relationships with customers – as well as your suppliers and your bank – as this could be vital to the survival of your business. It is not just about keeping customers happy. It is about working together and understanding their needs. Good communication will also help you to find out if
they are having problems that could impact on your business.


[Extract from Trading Through The Economic Downturn - published by NatWest - full Guide available by clicking here]

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