59 per cent of UK firms entered recession in state of higher credit risk
Research from Graydon UK, a leading credit risk management agency, reveals that the working capital and financing challenges currently faced by a growing majority of UK businesses cannot be blamed solely on the impact of the global credit crunch.
Analysis on the creditworthiness of all active UK incorporated companies, carried out by Graydon UK credit report, January 2009, using its normal credit scoring rules*,shows over half (59 per cent) of UK companies were allocated High or Above Normal Risk ratings by Graydon UK when the recession hit.
This equates to over 1,366,000 UK companies that were adjudged to be at an increased risk of falling into financial difficulty within one year.
In comparison, only 20 per cent of the total companies surveyed were awarded “Low Risk” ratings by Graydon UK. The figures therefore confirm that prior to the onset of recession, the majority of UK companies were already categorized as being more vulnerable to encountering financial difficulties leading to administration, receivership or liquidation.
Martin Williams, Managing Director, Graydon UK, said: “UK consumers weren’t the only ones to be swept along by the tide of credit available during the years of sustained economic growth. Companies were drawn in too and a willingness to embrace debt when credit was easily obtainable, combined with persistent UK culture of the late payment of trade invoices by larger organisations, meant that many small firms were not well positioned to deal with the credit crunch when it came.”
“As a result of this, inadequate working capital positions and high borrowing ratios were seen far too commonly in the credit profiles of many UK companies. History shows that businesses soon get into trouble when cash flow and finance dry up”.
Graydon expects the percentage of “High Risk” businesses will increase further in the coming months, fuelled by an increase in County Court Judgments and a slowdown in trading.
Despite this anticipated trend, however, there are practical measures that can be taken to increase business credit score:
Martin Williams added: "Current Government regulations stipulate that UK businesses’ statutory accounts covering what is likely to be the most severe reversal in UK economic growth, between mid-2008 and throughout 2009, will only start appearing at Companies House from late 2010 onwards.
“This means that as businesses start to pull out of the recession in 2010 and 2011, they may be saddled with poor credit ratings influenced by 2008 and 2009 financial performances, which may hinder their efforts to capitalize upon the business growth opportunities presented as confidence returns amidst the recovery.
“UK firms must pre-empt this issues by ensuring they volunteer up-to-date management account information to their banks and credit agencies as soon as they can, to help improve their credit scores. The rallying call must be to get in there early, as delaying could create even bigger problems in the longer-term.”
* Graydon’s credit scoring system is an empirically derived scoring system jointly developed by Graydon and Fair Isaac Corp. pioneers in scoring analytics.
For further information contact:
Stephen Finch / Giles Robinson
Weber Shandwick Financial
Phone: 020 7067 0705 / 0734
Email: email@example.com / firstname.lastname@example.org
Graydon UK Limited
Phone: 020 8515 1400
Notes to Editors:
About Graydon UK
Graydon UK is one of the leading database information providers specialising in credit risk management. The company helps clients reduce the uncertainty of doing business by providing a complete, differentiated and high-quality package of credit risk management services. Graydon provides access to credit information and reports on companies in more than 130 countries worldwide. The Graydon group is owned by Atradius, Coface and Euler Hermes, three of Europe's leading credit insurance organisation. www.graydon.co.uk
Managing Director Martin Williams was honoured by Credit Today, after being included on their Credit 100 list of people who have had the greatest impact in the credit industry in 2008.
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