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Experian offers advice to help businesses steer through the credit crunch
Nottingham, UK, 9 June 2008 - Experian®, the global information services provider, today warned that an increasing number of businesses are in danger of being refused traditional lines of credit as organisations become more selective in who they choose to deal with and is offering advice to help businesses through the credit crunch.
Tony Pullen, Managing Director of Experian’s Business Information division, comments: “The credit crunch is not only affecting the cost and accessibility of new credit, it is also starting to affect existing credit arrangements and threatening lines of traditional credit for some businesses. Businesses of all sizes are becoming increasingly selective in who they deal with and are turning to credit reference agencies like Experian to monitor their customers’ risk profile and taking action, for example, by refusing new lines of credit, reducing credit limits or terms, or calling in debt when customers appear to be getting out of their depth.”
With this increased focus on risk monitoring Experian recommends that businesses themselves monitor a number of key indicators to ensure that they maintain a low risk profile.
Adds Tony Pullen: “Looking in good shape financially and commercially to potential suppliers and customers will help secure continued business and lines of credit.”
To maintain a good business credit score and a low risk profile, businesses should:
- Pay bills on time. Tempting though it may be to delay payment, a worsening trend with bills being settled later and later each month is one of the key indicators of a deteriorating cash position. Experian’s payment performance information, for instance, is derived from a database that tracks 20 million transactions per month - the equivalent of £12billion of transactions each month - and used by businesses to identify good and poor payment trends.
- File annual returns and financial accounts on time. Experian’s statistical analysis shows that businesses with poor trading results tend to delay submitting their accounts as long as possible hence late filing of accounts is often perceived as a sign of bad news. The analysis also indicates that late filing of the Annual Return, which is a statutorily required list of directors and shareholders, is a characteristic of failing companies, particularly SMEs . Late filing of these returns can also be perceived as management inefficiency.
- Avoid focusing just on profit and loss. Look at your business’s cash position too. An ever worsening cash position is a clear indicator of a business heading for trouble.
- Avoid County Court Judgements. Whilst in more benign economic conditions the incidence of one CCJ would not necessarily involve the withdrawing of credit lines, it is more likely, in the current economic climate, that suppliers could take summary action against customers who incur judgements.
- Watch your own finances. For smaller and newly formed companies blended information, which cross references consumer and business information, can be used to give a picture of the personal and wider business interests and track records of those running a company. In cases like this where financial data can be scarce it can often be the best indicator of the business’s likely commercial integrity.
- Register with a credit reference agency or a directory like Yell or Thomsons. If you are not registered with credit reference agency or listed in a directory like Yell or Thomsons, then the likelihood is that you’ll fall below the radar and that CRAs will not be able to assign you a rating or risk profile, which could restrict access to credit.
- Monitor you own credit business report. And monitor the reports of those you do business with to look for early indicators that they may be heading into difficulties. Experian’s online Risk Report includes information on a businesses risk score and assigned credit limit, payment information on how quickly a company pays its bills, CCJ information and whether there are any alerts against a company such as a change in company name, director disqualification or serial director failure that may warrant further investigation.
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