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02 Jul 2009
A staggering 1.8m businesses have poor credit ratings largely because they do not file timely or detailed accounts at Companies House.
Up to 60% of SMEs in a sample of three million were described as ‘high risk’ or ‘above normal risk’, in terms of defaulting on trade payments or getting into financial difficulties.
The news will come as confirmation that, not only are companies suffering because of poor trading conditions in the recession, but also because of the formal procedures for filing statutory accounts. A poor credit score means companies will find it difficult if not impossible to access funding or credit from suppliers.
Insurers have been warning for some time that companies will not be able to access trade credit insurance, which guards against a suppliers collapse, if they do not provide up to the minute accounts but instead rely on statutory filings at Companies House that can be anything up to 18 months out of date.
The absence of readily available management accounts has so far only affected the relatively small number of companies seeking trade credit cover. It now appears the lack of timely and detailed figures is hurting vast numbers of smaller businesses with turnovers of up to £5.6m.
Companies at this level are obliged to file only abbreviated and unaudited accounts with Companies House.
‘The lack of up-to-date financial information is one of the main reasons companies have received poor credit scores and it’s something that the credit industry has fought against the government about,’ said Martin Williams, MD of Graydon, the credit rating agency that compiled the research.
‘Something’s got to give because it’s becoming a crisis,’ he added.
Credit ratings agencies say that government legislation to slash red tape by allowing smaller businesses to file reduced accounts has created major problems in assessing risk.
‘How are you supposed to give a company the all clear if there’s no profit and loss statement?’ added Williams.
While £5.6m is the current audit threshold, for companies with financial years starting on or after 6 April last year the threshold rose to £6.5m a move set to expand the number of companies likely to receive poor credit ratings.
‘That’s probably going to exacerbate the situation,’ said Martin Austin, director at Tenon Recovery.
‘The thing that staggers me is there is not sufficient investigation by the SMEs on the companies they do business with. The SMEs should be demanding management accounts themselves.’
But business groups have hit back, saying the dangers posed by the financial and administrative burden outweighed the credit community’s demands for more information.
A Federation of Small Businesses spokeswoman said: ‘The Federation of Small Businesses is not in favour of increasing the administrational and financial burden on small firms, which would be the case if SMEs were asked to provide more information.
‘The majority of small businesses do not have to file their end of year figures at Companies House because their turnover is too small to require it.’
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Visitor comments Add your comment
Understanding small company issues not.
'The majority of small businesses do not have to file their end of year figures at Companies House because their turnover is too small to require it.'
Uh ! More complicated than that ?
And in any case with the high number of accounts filed at companies house (abbreviated included) that do not comply with the companies acts, the information is misleading anyway.
Posted by: Spike, 02 Jul 2009 | 00:00
Astounded
I am astounded at the comment attributed to the Federation of Small Businesses. It is not realistic to expect credit agencies to give good ratings on out of date and limited financial information. A key factor in many SME failures is a skills gap in financial management and (whilst I do have a vested interest) I would have thought SMEs would be better served by guidance on the pitfalls of poor accounting and financial management and how to address any weaknesses.
www.camroseconsulting.co.uk
Posted by: David Lewis, 02 Jul 2009 | 00:00
SME Financial Information Provision
credit insurers are demanding management accounts whether or not statutory requirements have been met on time. Many SME's do not have the in house expertise to provide such accounts, and cannot afford to pay auditors and accountants to do this
Posted by: Paul Carr, 02 Jul 2009 | 00:00
Company Law let's down private businesses too!
The SME population we analysed at Graydon included private firms too.Whilst I'm not advocating filings of accounts at Companies House, I do believe we should have a similar law in the UK to the Irish Registration of Business Names Act 1963. In Dublin, records are kept of when private businesses were established and who owns them. The lack of a registry in Britain makes credit assessments on private businesses very difficult and they suffer as a result.
Posted by: martin williams, 03 Jul 2009 | 00:00
Re Paul Carr's Comment
I think it is fair to say that in some cases the traditional accountancy firm model, means that costs are too prohibitive for SMEs to afford the extra cost. However bookkeeping can be outsourced at a reasonable cost.
Also there are part time FD service providers that have a different model to accountancy firms and more affordable pricing. Bringing in someone of the right calibre will go beyond simple number crunching and can add real value in terms of improved cash management, a forward looking perspective and can help owner "see the wood from the trees" and make the right decisions.
www.camroseconsulting.co.uk
Posted by: David Lewis, 05 Jul 2009 | 00:00
Burden ?
Am I missing something here ? The profit and loss obviously exists already. It is merely the company's choice not to disclose it at Companies House. The "burden" of attaching it is surely miniscule. Many accountants attach it as a non-statutory addition to every copy of the accounts anyway.
Posted by: M Hutchinson, 06 Jul 2009 | 00:00
re: Burden?
You are absolutely right regarding the existence of the P+L.
The only "burden" I can see for SMEs is if they have difficulty in producing statutory accounts on a timely basis. If it is a struggle then I would suggest that it raises questions about the adequacy of financial control -which would be a concern to the ratings agencies.
Many SMEs file abbreviated accounts which are not mandatory. The full accounts still have to be produced even if they are not filed at Companies House. Therefore current practice (of filing abbreviated accounts) is actually more onerous than necessary.
Posted by: David Lewis, 06 Jul 2009 | 00:00
Regurgitation
Is it me or are more of the stories in AA becoming regurgitation of press releases in which some bright PR gets its companies services mentioned in the guise of journalism. Get your burgers from Fatsos.
Posted by: Paul, 21 Jul 2009 | 00:00