Out of date credit information will threaten the survival of many small businesses and stifle the UK’s economic recovery, according to Graydon.

To tackle this growing problem a new joint venture between Graydon and Future Route – CreditPal – has been approved by the Federation of Small Businesses to ensure that supplier and lender decisions are based upon a company’s current financial performance.

The recession has increased lenders’ appetites for detailed evidence that firms are not going to default on their debts. But due to lenders’ reliance on historical data, a company’s financial viability is judged on its performance during the slump, irrespective of the gains it is currently making.

The CreditPal system allows companies to upload monthly management statements to the credit reference firm which can then be validated using Future Route’s pioneering Validis software. The FSB will now provide CreditPal as a benefit for its members.

By providing validated monthly management statements companies can access finance needed to keep them on track for growth.

Despite CreditPal allowing companies to improve their access to credit, some firms are still cautious about data sharing.Martin Williams, Graydon managing director said: “Firms are cautious about sharing their data with the tax man, or competitors – but they can now decide to allow just their suppliers view the information.”

Williams said that the system was now being used by major suppliers who were offering to raise clients’ credit scores for subscribing to the service.

CreditPal was approved by the FSB national committee on 27 January and Williams believes that it is likely to be unveiled at the FSB national conference in March.

As a credit information man, I’m always trying to persuade businesses that good credit scores can directly impact their cash flow positions, so i was particularly pleased to hear yet more clear evidence yesterday from a bunch of credit managers as to how this can happen, in order to back up my perennial arguments on the subject.

Many credit departments nowadays are buying in software packages that help drive cash collection actions. Yesterday i heard from credit managers who allocate colour codes (green, amber , and red) to all existing credit accounts on their sales ledgers depending on the credit scores of their clients. If payments become overdue from a “green” client (one who has a good credit rating), some leeway is given before chasing up strenuously , whilst if payments are beyond due date from a “red” client, they’re chased immediately for the money. thus proving that companies with good credit scores can obtain extended credit far more easily than poor rated ones. if the “green” client has 15 or so more days in which to pay because the supplier has less concern about a bad debt arising, you can see how less pressure is brought to bear on his cash flow position, particularly if this was repeated many times over by different suppliers.


Companies should understand much more about how their credit ratings are produced by agencies like Graydon and D&B, and what they can do to try and improve their own credit ratings. As an industry, the credit reference fraternity is realising that its got to be more transparent about how it goes about its business, so expect some useful material on the subject coming into the market soon- that’s a promise!

The importance of business credit ratings is an issue often referred to, but rarely addressed. For this reason, while many are keen to talk up the ‘green shoots of recovery’, little airtime is being given to a looming crisis that is awaiting businesses in 2010.

The credit crisis highlights the need for every business to assess the ability of their suppliers to supply or the ability of their customers to pay. Before either an order is given or one is taken, many businesses check their trading partner’s latest credit rating. The problem is that current Companies House filings reflect performance during the worst of the recession when many businesses experienced their worst trading performance ever, hampered by the increasing reluctance of banks to lend and suppliers to extend credit. Hard work has restored many businesses’ finances. Many are hoping to build on that progress in 2010.

This could be jeopardised just when recovery is in sight because Credit Referencing Agencies (CRAs) use statutory annual accounts filed at Companies House as an important part of their credit assessments. New credit ratings will be based on annual statutory accounts that reflect a business’s performance during the worst recession for a generation.

Professor Russel Griggs, chairman of the CBI’s UK SME national council, believes many remain unaware of this and therefore it is difficult to say how this scenario will play out. ‘I can’t predict what the full effects of this might be and I don’t think the finance and credit industry knows either,’ he says.

Griggs is quick to say that any sort of doomsday scenario is avoidable if all parties work together and SMEs and large corporates work alongside the credit and finance industries. ‘It is all about improving accountability and transparency and increasing information flow between trading partners. That’s not just the responsibility of businesses; the credit, finance and supply chain managers need to be communicating to their customers exactly what is required of them,’ he says. Martin Williams, managing director of credit referencing agency Graydon, agrees that everyone has a part to play. ‘It is our responsibility to make it clear to businesses exactly what information they need to supply in order to be properly assessed. However, it is also crucial that owners and managers move away from the mentality that regards all financial information about their businesses as private and confidential. They must embrace the idea that transparency of up-to date financial information can be a positive thing for both themselves
and for their suppliers and customers,’ he says.

Griggs agrees: ‘Businesses don’t have anything to fear about being more financially transparent as no one wants bad debtors or failures in supply. Survival – let alone growth – depends on better management of a business’s own finances and then to share this with their trading partners. This is very much a two-way exercise as, in turn, it is essential that every supplier and customer sees that business in the best possible light.’

‘Nervousness in the finance and credit markets can only continue,’ concludes Glenn Collins, head of advisory services, ACCA UK, ‘therefore now is the time for businesses to take control of their own credit ratings and also understand the credit ratings of those they do business with. Financial transparency of monthly management accounts will be crucial to achieving this and offset the negative impact of end-of-year accounts that reflect the poor trading year.’

I feel that your comment on the CreditPal/YouGov survey missed a number of key points.

First of all the recent credit/cash crisis has come about because of a lack of ability to assess and price the risk of lending money, providing credit or doing business. Many in the supply chain management, finance and credit industry relied far too much on out-of-date statutory companies house annual filings and the recent crisis has highlighted this failing.

What we are saying is that by preparing and supplying up-to-date management accounts, an SME will increase the confidence of the providers of credit and finance. This will be further enhanced if that information is standardised, validated and quality assessed. Then the real bonus is if the latest information is better than that filed at companies house. As more companies file their 2008/9 accounts and as the economy climbs out of recession, so the real attraction is that up-to-date trading/financial position should be a lot better and will show the business in the best possible light.

The key is to have a means by which accountability and transparency can be increased between those who require finance – UK businesses – and the providers of finance/credit – banks etc. In this process it is more about building trust and managing expectation and this can only be achieved by UK business being more up-to-date in providing management accounts to external suppliers.

The added bonus is that once they start to produce monthly management accounts, then they will be managing their own debtors and suppliers better and that will reduce the overall risk of “doing business”. After all this CreditPal/YouGov survey’s other findings was that over 50% of UK businesses have lost money because either a supplier or customer has failed to pay.

Whilst, I appreciate that there are differing views of the public commitments made by the likes of Lloyds Banking Group and Royal Bank of Scotland with regard to business lending, they say they are open to viable applications and therefore the key concern for businesses should be presenting a convincing and accurate reflection of their current trading position.

You rightly point out that seeking an overdraft from a bank manager who already knows your business can be an efficient way of sourcing finance. However, if businesses were to offer potential lenders access to stanardised, validated, quality assessed up-to-date monthly management accounts then there is little to suggest that a loan application process shouldn’t be as streamlined.

As I said, businesses and credit providers must increase disclosure and transparency if we are to get the system moving. CreditPal, which is free to every UK business, is an easy way of achieving this. CreditPal analysis remains under the control of the SME yet can automate the supply of raw data, summarised info, analysed data or derived accounts ratios to banks when – and only when – the SME is happy their data is validated and accurate. Then this becomes the conduit by which banks can make it easier for businesses to understand the criteria behind their lending decisions.

Only through the two sides working together will they be able to invest and provide the foundation for a sustained recovery and ensure that UK businesses thrive and prosper.

New research from CreditPal reveals in the last 24 months SMEs have sourced £45 billion from alternative sources of finance. SMEs owners and managers have been forced to sell private assets, or rely on friends and family for emergency finance, in place of funding from traditional financial institutions through bank loans and overdraft facilities. On average each SME utilising alternative forms of finance has raised capital totalling £66,624 in the last two years, the equivalent of £2,776 a month.

More SMEs turned to alternative sources of finance in the last two years (41%) to raise capital than applied for bank or building society loans and overdrafts (35%). This trend may be explained by SMEs being overly fearful of being declined for credit, which is discouraging them from making applications. CreditPal is advising SMEs seeking to make applications for bank or building society finance that they need to convince the lender they are an acceptable financial risk. Businesses can do this by taking proactive steps, such as producing accurate management accounts on a monthly basis to highlight the underlying health of the enterprise.

Business owners and managers have sacrificed family expenditure to help keep their companies afloat in the last two years. Family holidays have been sacrificed by 15% of those seeking alternative forms of finance. One-in-ten (11%) SME business owners and managers have been forced to go cap in hand to friends and family for funds to ensure they have sufficient cash flow to meet their commitments. Pension funds have been raided (3%) and children (1%) have been pulled out of private education as the recession has hit revenues.

Chris Poll, CEO of CreditPal, commented: “Thousands of SMEs have been forced to rely on credit to survive in the last two years as a result of disruptions to business cash flow. 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. We desperately need to see a return to traditional lending if the economy is to return to an even keel. In the long term the sale of private assets is not sustainable and relying on friends and family for funding can prove a financial and emotional risk if there are problems with repayments.”

SMEs have even turned to private lenders (4%), including loan sharks that charge punitive rates of interest, to raise funds. One in twenty (4%) SME business owners have been forced to dilute or sacrifice equity stakes in their business to source additional finance. Some business owners have been forced to sell privately held assets (8%) such as cars or property to fund their businesses.

Recession-hit small businesses are actively managing their cash flow yet struggling to access finance because they are not presenting their management accounts in the correct format to the finance and credit industry.

The news follows the latest research from the Forum of Private Business (FPB), commissioned by CreditPal, the free accounts analysis system for SMEs.

The FPB is calling for greater collaboration between banks and businesses by asking that lending decisions based on realistic assessments of up-to-date risk of individual businesses. In turn, business owners must be prepared to help themselves by working more closely with lenders by providing latest detailed management accounts information.

The survey found that 96% of the SME respondents have improved their cash position through better controls rather than looking for outside financing. Pursuing late payers (76%) heads the list, with placing tighter controls on ordering supplies (67%) next, followed by internal cost-cutting exercises (67%) and then deferring payments to HMRC under the Government’s ‘time to pay’ scheme (25%).

The strongest sign that the credit crisis is driving better internal financial management is that 68% of respondents said that they now produce management accounts – with 85% of these citing the reason for doing so as improving business management. However, the cost of doing this is considerable – on average, over £500 each and every time. Just 17% of respondents cited accessing credit as the motivating factor behind the production of management accounts.

Interestingly, almost a third (31%) identified credit checks as the most effective method of monitoring their supply chain, yet few are prepared to supply their own latest financial information to outside parties. Today, just 13% are prepared to make available their latest management accounts and only 6% are willing to provide their own audited accounts.

However, in an economic environment characterised by continuing credit restrictions, clear and thorough financial information is increasingly being demanded by the finance and credit industry when assessing lending risk.

Surprisingly, only 8% of respondents said they have actively taken steps to improve their credit rating, probably reflecting the situation that the historic filed annual accounts currently show a better financial position than current trading. This is expected to change dramatically over the next six to nine months as UK businesses file 2008/9 accounts, as the then current trading is expected to show a better position. This will result in UK businesses requiring credit assessments to be based on their latest management accounts rather than the filed information.

“There is little doubt the UK has entered a new era of business finance,” said the FPB’s Chief Executive, Phil Orford. “While it remains unsustainable for lenders’ decisions on credit worthiness to be made generically, using over-centralised risk aversion criteria, business owners should be proactive in controlling their own destinies by providing thorough financial projections utilising new systems that enable management to produce up-to-date accurate financial information.”

The FPB is working to empower business owners via the free management accounts analysis and financial information supply service provided by Creditpal, which offers free speedy, in-depth analysis of a businesses entire management accounts thereby saving an average UK business hundreds of pound per year.

The online service, which sits on Amazon Cloud Computing and is is certified to ISO27001 standards to provide the highest security standards, is approved by accountancy bodies the ICAEW and ACCA.

Chris Poll, CEO of CreditPal, said: “Free CreditPal was created to meet the SMEs needs as highlighted in this survey for an easy to use, highly secure online business reporting service that complements an SME’s existing accounting system. CreditPal enables even non-accountants to comprehensively review and efficiently prepare accurate monthly management accounts for internal purposes. Then if required the owner/managers can automatically produce standardised and validated summaries for submission to suppliers of credit and finance.”

An interesting statistic is that only 15% of respondents said their accountants had been the driver getting them to produce management accounts.