Dealers - how to weather the credit crunch

Dealers may find their financial health coming under increased scrutiny, warns Experian, as companies become more selective about the businesses they deal with.

Whilst the biggest impact of the credit crunch has been on the cost and accessibility of new credit, existing credit arrangements and traditional lines of credit for some businesses could also start to be affected. Dealers may find that their own risk profiles are being monitored more closely by the businesses they trade with.

In an industry where stock value is high and traditional lines of credit are vital, dealers need to pay more attention to their financial and commercial well being. Potential suppliers and customers who see that dealers appear ‘out of shape’ may think twice before continuing their business relationship and lines of credit.

The following tips on dealing with the fallout of the credit crunch should help businesses maintain a good business credit score and a low risk profile:

• Pay bills on time. Tempting though it may be to delay payment, 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 is 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 often being 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.

• Don’t just focus on your 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 a single 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 the track record of those running a company. Where financial data is scarce, this can often be the best indicator of the business’s likely commercial integrity.

• Register with a credit reference agency or a directory like Thomsons. If a company is not registered with credit reference agency or listed in a directory like Thomsons or Yell, then the likelihood is that it will fall below the radar and that CRA’s will not be able to assign it a rating or risk profile, which could restrict access to credit.

• Monitor your own credit business report. Companies should monitor the reports of those they do business with to look for early indicators that they may be heading into difficulties.

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