New research from CreditPal reveals that three quarters (77%) of SMEs were able to secure or extend existing credit from their suppliers in the last 24 months after sharing their management accounts with them.
They did so following requests from trade credit insurers who are increasingly demanding additional disclosure from the customers and suppliers of a business. The SMEs that have made their management accounts available for scrutiny were best placed to protect their position despite the difficult economic environment.
In the last 24 months a third (35%) of SMEs that supplied management accounts to suppliers, following requests by trade credit insurers were able to extend their credit terms. An additional 42% of SMEs in this position were able to keep their credit terms the same throughout the height of the recession by sharing their management accounts.
Chris Poll, CEO of CreditPal, commented: “Increasingly credit trade insurers are looking to source intimate financial information about their clients’ trading partners. Insurers and businesses are adopting new strategies for financial risk mitigation to ensure they minimise their exposure to bad debt and defaulted payment. Financial directors are increasingly coming under pressure to supply real time updates regarding a trading partner’s financial status to satisfy compliance requests from their credit trade insurer. Annual report data that could be over 18 months old filed at Companies House is no longer deemed sufficient. Transparency and openness are rapidly becoming the key buzz words in all areas of the SME accounting and finance sphere.”
Philip King, Chief Executive, Institute of Credit Management, said: “Trade credit insurance plays a vital role for SMEs in particular and it is clear that insurers will be more inclined to write cover and maintain limits given greater financial disclosure. Offering that disclosure will be of considerable benefit to both customers and suppliers.”
Over 47,000 small and medium sized businesses that refused requests to provide management accounts to a business partner or customer, to satisfy credit trade insurers’ compliance requests, found their credit facility was either cancelled or refused in the last two years. Over 670,000(2) businesses were requested to provide their management accounts to their suppliers for insurance purposes in the last 24 months.
Philip King continued: “Credit Managers, who keep the supply chain moving, also find CreditPal compelling: – Credit professionals have long demanded validated monthly management account information as a tool for pricing and managing risk. The availability of comprehensive information is vital to restoring confidence in assessing the financial risk of incorporated and unincorporated businesses. The availability of validated monthly data is an exciting innovation that will enable credit professionals to make better and more informed decisions.”
