UK credit gap 'growing wider'

David Harvey our consultant managing the role

British businesses currently owe each other £75 billion, with concerns that this significant credit gap could have an impact on the country's relatively fragile ongoing economic recovery.

According to a report from the Credit Management Research Centre and Taulia, firms could face insolvency if they do not work out a way to improve this pipeline.

Small and mid-sized companies are particularly at risk, reports the Telegraph.

This situation is unprecedentedly severe and could pose a serious risk to the UK's economic health if it is not dealt with, raising the possibility that finance professionals with B2B expertise could see their stock rise in the coming months.

John Keating, European managing director at Taulia, expressed his concern that credit is being used as "a blunt instrument" by many firms.

The report studied 15 million limited company reports that were filed between 1998 and 2012, finding that 80 per cent of everyday business transactions were carried out on credit terms.

Without this facility British commerce would grind to a halt, the study indicated.

Professor Nick Wilson, author of the report, claimed that it is small rather than large firms that could be seen as the "villain" of the piece when it comes to over-reliance on credit.

On average, small to medium-sized enterprises (SMEs) take ten days longer to repay their debts than their bigger counterparts.

"Not only does it demonstrate the SME’s reliance on trade credit, but also damages their future ability to secure finance with the banks," added Professor Wilson.

"Many small firms do not have the knowledge, understanding, tools or credit management processes in place to understand how to optimise the use of their trade credit,” added Jon Keating, managing director at Taulia.

Potentially, these businesses could attempt to bring in experienced workers who can help them ensure these processes run smoothly, reducing the risk of any kind of incident.

Larger companies, as seen in this report, tend to have the technology and expertise already in place to optimise their credit flow.

11/04/16
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