Business News
Credit criteria causing headaches for small businesses
Credit ratings and limits are not an easy animal to master at the best of times, and when faced with the current economic climate and the possibility of having to present your proof of viability to banks, investors and suppliers on a daily basis, as a small business it’s a headache you could well do without.
Accountants at Shelley Stock Hutter have found that the sheer lack of any kind of uniform credit criteria has meant that huge disparities in the limits offered to businesses has confused and potentially damaged small firms that cannot afford to have mistakes made for them. The accountancy firm looked at the ratings from Experian, Creditsafe and Dun & Bradstreet to collate their findings, and found in one case alone a massive £283,000 difference in the credit limit offered (£7000, from Dun & Bradstreet to Experian’s £290,000). This wild array of figures being drawn up for the businesses has also confused progress in their credit ratings, with varying numbers being dished out over a 2 year sample period meaning a common denominator was almost impossible to conclude.
Bobby Lane from Shelley Stock Hunter commented on the subject: “We have seen this demonstrated on a number of occasions where a client relied on a credit limit that caused them a significant loss, or where clients have been unable to grow their business as suppliers or banks were incorrectly assuming (from the credit limit obtained) that the business was not financially sound.”
He added, “Surely the time will have to come where the agencies must be forced through a code of transparency to identify how they are arriving at their recommendations.”
Shelley Stock Hunter have also advised that small businesses look for business plans and management accounts when looking to make financial and decisions on credit, and not to solely reply on the ratings and limits offered by the various agencies.
Phil McCabe from the Forum of Private Business backed up the accountants' findings: “This has been the untold story of the ongoing problems surrounding small business lending. It is also a serious supply chain risk.
“Companies will simply refuse to trade with firms based on flawed credit reports and some small businesses could be persuaded to trade with high risk organisations based on an overly-generous score.”
