Chris Poll, chief executive officer of CreditPal’s parent company Future Route, speaks to AB magazine about the lessons he’s learnt, the tips he can give and why CreditPal and Validis are such essential tools for accountants and businesses.

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.”

Research published today by CreditPal shows that 43% of the UK’s Small and Medium Sized Enterprises (SMEs) applying for credit in the last two years were required to supply monthly management accounts by their lender.

The research reveals that even for the smallest businesses with a turnover under £1million, almost a third (29%) were asked for monthly management accounts to support their application for finance.

The proportion of companies being asked for this information varies radically between sectors, with 65% of manufacturing businesses being asked for monthly accounts, yet only 25% of retail enterprises were asked to supply them in support of their application. Despite widely reported difficulties in the construction industry, less than half of all credit requests from that sector required this supporting data. The findings appear to support the belief that companies are being scrutinised based on their sector classification, rather than being assessed on their individual performance.

Many SMEs are ill-equipped to provide the financial information now required by banks and building societies before they will consider extending finance. More than one in ten (15%) SMEs who were asked for monthly management accounts did not have them already available. Having these financial documents specially prepared meant these businesses incurred estimated cumulative charges of £50 million.

Chris Poll, CEO of CreditPal, commented: “The availability of credit is vital to help SMEs deliver growth for the UK economy. The concern many small enterprises have is that credit decisions are based primarily on their business sector, rather than by assessing their individual case. However, if lenders have access to the most up to date financial information they are able to assess and price credit more effectively.

“Our research indicates if businesses have validated monthly management accounts readily available they will receive decisions on their applications more quickly. Small business owners may think that monthly accounts are unnecessary, but the research indicates that lenders will demand greater transparency for even low levels of borrowing. While time spent preparing the accounts may be seen as a distraction from day to day operations, the benefit they bring in terms of management information, as well as helping facilitate access to credit could be invaluable. This is why we created CreditPal and made it free to UK business.”

Some say they are…..A lot say they aren’t….. but the debate as to whether banks are lending to SMEs during this ongoing economic crisis rumbles on.

There must be a whole load of reasons why some SMEs succeed in persuading banks that they are worth the punt, and then again, a number of reasons why banks turn down loan applications.

I was down in Westminster the other day talking to a Trade Credit insider at the government’s BIS department to learn of one big reason that prevents banks from lending. Apparently, from evidence that the banks have shown to BIS officials, its clear that many applications from SMEs are woefully inadequate. Which raises a big question in my mind…… are SMEs trying to obtain advice from accountants on how to pitch for a business loan i.e. what should a loan application be supported with (management accounts, cash flow forecast, breakeven analysis, yearly business plan?)

If SMEs aren’t asking for this advice from their financial advisers, they should be. Many business owners are good at what they do on a day to day basis when running their businesses, but pitching to a bank for a loan in this economic climate calls for a degree of expertise that I would guess sits outside the average SME owner’s comfort zone. Perhaps accountants should come forward a bit more to proactively market this type of service to the SME community, as clearly, there is a gap in the market that needs filling. Maybe some accountants are helping their small clients obtain bank support by offering advice on shaping a loan application. If you do, I’d like to hear from you because i reckon you’re the exception to the rule based on the evidence I can see.

A growing number of small business owners are opting for personal insolvency in a desperate attempt to keep their company afloat, research shows.

Bosses have been using credit cards to finance their business and been prepared to pay the consequences when pressed by card companies to settle their accounts to protect their company.

Official figures recorded a sharp rise in personal insolvencies in the first nine months last year, masking what economists feel would have been a bigger increase in total business failures during the depths of the recession.

Full-year figures out on Friday will provide further insight into whether the trend has been maintained. In the third quarter alone, company liquidations were down almost 13pc at 4,716 on the corresponding period in 2008, while personal insolvencies jumped 28.2pc to 35,242.

The greater use of credit cards is just one of the alternative finance routes being used by small business owners as they struggle to raise bank finance on favourable terms. Loans from friends and family and asset sales have also made a contribution, with the result that over the last two years around £45bn has been raised by small companies from non-banking sources, according to data from CreditPal.

The “fear factor” has played a part in accelerating the switch from traditional bank and building society fund-raising avenues, researchers believe.

Chris Poll, chief executive of CreditPal, said: “Thousands of small and medium-sized enterprises (SME) have been forced to rely on credit to survive in the last two years as a result of disruptions to business cashflow.

“We believe we have identified an SME fear factor at play, with companies more likely to seek finance from non-traditional sources because they are scared of even applying for finance from banks and building societies.”

The CreditPal survey also showed that 15pc of the sample sacrificed family holidays in an effort to conserve cash. Pension funds have been raided in a small number of cases, while some business owners have pulled children out of private education in the search for economies and extra finance.

After surveying 10,000 of its members, the Federation of Small Businesses estimates that 41pc of them dipped into personal savings, 43pc used overdrafts and 21pc their credit card to stave off the recession.

Another survey, of 750 businesses by Graydon UK and the Forum of Private Business, showed 28pc of owners turning to friends, relatives and fellow directors for funding, while 8pc used personal credit cards.

In the second half of last year 40pc of companies failed to raise finance, with 52pc of them refused business loans and 38pc told they would not be given an extension on their overdraft facilities.

Business owners see little relief in sight this year, with almost a fifth citing access to finance as their biggest headache. The study suggests SMEs will need additional average funding of £113,731 this year, with 60pc of the total expected to come from banks.

Meanwhile, almost one-in-four businesses surveyed by Aviva UK Health said the economic struggle has had a lasting impact on employee stress levels, leading to a rise in long-term absence rates.