Britain's SMEs face battle to secure credit

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filings at Companies House that can be anything up to 18 months out of date.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.’