SMEs urged to 'open up' to end the curse of bad credit scores

SMEs’ management accounts should be seen and not hidden, according to advisers, credit insurers and credit ratings agencies.

Because of the lack of the up-to-date financial information the curse of bad credit scores is now hitting 1.8m SMES, Accountancy Age reported last week. This has added weight to calls for the confidential data to be shared.

The only ones still resisting appear to be the companies themselves, but the extraordinary conditions could cause a change in attitude. This would constitute further reputational damage to the idea of statutory accounts being anything like useful. They are sometimes two years out of date when filed at Companies House.

Last week, Tenon recovery expert Martin Austin said he was ‘staggered’ to find SMEs failed to undertake more due diligence on the companies they strike contracts with.
‘There’s more than one way to skin a cat,’ Austin says. ‘Say to the company “Let’s have a look at some management accounts” and use your accountants to interpret them.’ Austin also calls for SMEs to approach their banks for ‘status enquiries’.

These probes work out whether the company the SME is interested in doing business with is likely to declare itself bankrupt, whether they have got many other creditors or whether they are likely to dissolve their company.

But businesses should also be taking responsibility for their own credit security, says Martin Williams MD of Graydon, the credit agency that flagged up the SMEs’ poor credit scores.

‘They should start to be more transparent and share the information with the parties who matter ie the credit ratings agencies and the credit insurers and their clients,’says Williams.

Richard Baron, of the Institute of Directors, believes it would be better for companies hit with bad credit scores to turn the situation on its head and use timely information to convince lenders.

‘If people are getting bad scores obviously this is a bad thing, but this is only if the scores are accurate. We certainly want the money to be lent to by the banks. If a high-risk company could be given its credit score, and prove to the bank by providing up-to-date information that it had improved, say, in the past six months, this could be a solution.’

The business department will be completing the implementation of the Companies Act on 1 October.

In the consultative phase of this process, companies were lining up to make sure they would not be hampered by over-regulation, the department said.
This suggests companies would resist any attempts to force more information out of them than is absolutely necessary.

The business department says: ‘A compromise always needs to be struck at such times between those submitting information to Companies House and those seeking information from the public record.

‘Sensitivity on this issue has been heightened of late by the economic crisis. If there is a need for more in-depth company information in the future this case will need to be made through the appropriate channels. Companies House acts very much as “honest broker” receiving and supplying only that information which is currently required by law.’

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