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25 Jun 2009
Confidential financial information may have to be disclosed by small and medium sized companies if they want to avoid lending decisions being based on accounts compiled during the recession.
An economic upturn is expected in 2010 but credit decisions for small to medium enterprises, the bedrock of the UK economy, may be based on statutory accounts two years old, a credit ratings expert and the UK’s largest trade credit insurer have warned.
Fabrice Desnos, chief executive of Euler Hermes UK, the trade credit insurer which provides businesses cover guarding against their clients going insolvent, said: ‘It will make more companies willing to share more timely information and we are starting to see evidence of this. It will be seen as being more in their interest to do so, because it will give them a chance of better credit terms.’
Desnos said Euler were already analysing ‘benign’ 2007 accounts which were effectively the ‘counterpoint of where we are now’. He said: ‘They do not give an accurate reflection of how a company is doing. When we get to 2010/11, the statutory accounts simply won’t reflect how well the company may be doing because they are based on the worst of the financial crisis.’
Difficulty in securing lending has been a major driver of insolvencies Martin Williams, MD of credit ratings agency Graydon warned and added that the recovery of the UK economy could be stunted. ‘In 2010 and 2011 credit checkers may be basing their decisions on statutory accounts at Companies House from the recessionary years of 2008 and 2009,’ he said.
‘Can SMES and their accountants afford to let that happen? Can the country afford to see this happen? It will just hold the economy back from recovery.
‘I fear for SMEs ability to trade freely in future unless accountants advise their clients about the potential consequences of not embracing the notion of financial transparency,’ Williams added.
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Briefings
By looking at the reasons supplier statements became unfashionable, and the reasons why it is different today, this paper delves into the many benefits that can be obtained by automating the process.
Having a real and true view of your organisation’s current financial position, and having the right systems and processes in place, will ensure that you can make strong choices and are ready to capitalise on opportunities
AccountancyAgeInsight is a frequently updated resource centre for finance professionals, offering a free and easy-to-use digital library of briefings, white papers and other information resources. 
Visitor comments Add your comment
Some only look at current trading
I agree with financial transparency.However we have found that, despite providing detailed current information, one provider only looks at current trade and totally ignores Balance Sheet strength. It appears that what is actually happening is that they wish to reduce exposure to the construction sector as a whole and will just do so.
Posted by: Richard Painter, 25 Jun 2009 | 00:00
Euler Hermes have overstepped the mark
Euler Hermes have blackmailed us into providing up to date management accounts, despite us having a very solid balance sheet. As a result of them demanding (at zero notice) our accounts, we have investigated resourcing to avoid troublesome suppliers. Other suppliers have stopped insuring with Euler Hermes once they saw our balance sheet.
One cannot help but question the stability of Euler Hermes in present circumstances, with so many claims about. Perhaps this is the cause of their approach?
Posted by: Tony Cotton, 25 Jun 2009 | 00:00
The true motive behind this push for transparency?
It is interesting to note that Euler put forward the argument that next year, credit rating will be based on financials recorded during the recession, unless SMEs start providing upto date managment accounts. This may be true but more importantly, the credit insurance industry is pushing to get current management accounts because they are eager to factor in the currrent deterioration in the economy, rather than relying on 20087 or 2008 accounts which, for most of them, would have been during pre recession time. So I suspect the true motive is more to do with gettimng up to date informatuion to deterirate credit rating, rather than protecting future ratings. As proven in the past, the credit insurance industry is quicker incorporating bad news and slower taking into accoutnt good news
Posted by: Olivier, 25 Jun 2009 | 00:00