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Small firms shackled by credit rating 28 June 2009
Steven Jackson (about the author)

Nearly two thirds of UK small firms have a credit rating that may hinder their ability to obtain credit finance and favourable credit terms from suppliers, according to a study.

A study carried out in June by Graydon UK reveals that 60 per cent of the three million small and medium-sized enterprises (SMEs) it analysed were assessed as ‘high risk’ or ‘above normal risk’, in terms of defaulting on trade payments or falling into financial difficulties. Just 13 per cent of the companies reviewed were awarded low risk ratings by Graydon UK.

Martin Williams, managing director of Graydon UK, said: "While the recession has unquestionably had an adverse impact on the creditworthiness of small firms in the UK, just as much damage has been inflicted by the sheer absence of relevant information on their financial performance. This lack of data is known to damage companies’ credit scores, just as it does with personal credit scoring.

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"This long standing problem results in part from the lack of a central registry in the UK for unincorporated firms to lodge even the most basic details about their existence. Successive governments have also chosen to pass legislation reducing the amount of financial information incorporated companies must file at Companies House."

He added: "Politicians will claim that they’re supporting business by reducing the red tape burden associated with filing company accounts. However, all the current system serves to achieve is to strangle the flow of credit so desperately needed by UK businesses in order to rejuvenate the economy."

During 2009, both the Institute of Credit Management and the Association of British Insurers (ABI) have spoken out publicly about the necessity for UK businesses to share accurate and current information with credit reference agencies and insurers. In February, Philip King, director general of the ICM, commented that without this information, these agencies will struggle to justify making positive recommendations during the credit rating process.

Williams added: "Companies need to appreciate that sharing current financial information holds the key to seizing more control over the credit recommendation they receive and the credit they can access to help them run their business."

Source: Beat My Debt