Keeping Pace With SME Credit Conditions

A trio of SME-focused surveys have hit the wires today, each shedding light on a different aspect of the small business landscape.

We now have the Q4 data from CreditSquare’s UK SME Credit Indices – and it’s not a pretty picture. The UK SME Credit Indices offer a means for taking the pulse of credit conditions for the country’s small business owners. The index is fed data from various high-level lender surveys, borrower surveys and official market data.

Most noteworthy is a significant contraction in the supply of credit during Q4 2014. Indeed, it’s the largest decline in the history of the index, with credit supply now sitting at 38.9. This follows 7 straight quarters of positive or near-neutral readings for credit supply. The Q4 decline corroborates the latest update from the Funding for Lending Scheme – which revealed an £800m drop-off in conventional small business lending.

Some other key takeaways:

• There was a sharp decrease in the proportion of SME borrowers who feel satisfied that they were offered the bank loan they wanted.
• Demand for Credit (C2CD) has slowed a little but remains in positive territory at 50.4.
• Various lenders indicated an increase in both the supply and demand of credit, but this collective claim was contradicted by the quantitative data and by borrower surveys.  

The full report may be viewed here.

Peer-to-peer bond provider UK Bond Network has delved into the ever-relevant issue of SME awareness. The main findings:

• 50% of the nation’s small businesses say that alternative finance has opened up new opportunities to gain access to funding.
• 68% would consider using alternative routes to raise capital – a figure that rises to 94% among companies with annual revenue over £1.1m.
• 42% of respondents with revenues equal to or less than £1m were unaware of the existence of alternative funding structures.
• The preceding figure drops to just 15% when assessing businesses with revenues of £1.1m or higher.

Chris Maule, CEO and Founder of UKBN, offered his take on the results:

"Looking at the survey results, there's a clear correlation between understanding alternative finance and willingness to use it. With this being the case, improving knowledge of alternative finance will be critical for increasing its uptake. While demonstrating its benefits to business owners themselves will be important, increasing understanding among accountants and professional advisors – the bodies SMEs trust – will be critical if the sector is to reach its full potential to support SME growth.”

And finally, a survey that looks to expose the far-reaching impact of late payment amongst British businesses. Commercial debt collection agency Hilton-Baird Collection Services has quizzed UK business owners and finance directors on how easy it’s been to collect payment over the past year – as part of an annual exercise named the Late Payment Survey. The results:

• 30% of businesses now classify over 10% of their debtor book as over 90 days old.
• 30% of UK businesses have had to increase borrowing as a direct consequence of late payment. This includes the use of credit cards.
• 31% of the time being spent by businesses on credit control is consumed with the chasing of overdue debt.
• 19% have had to delay payment to HM Revenue & Customs.
• 10% have been forced by late payment to turn away new business.
• The average invoice is now being paid 22.5 days beyond the agreed credit terms. That’s the longest delay in the history of the Late Payment Survey, which began in 2011.

Alex Hilton-Baird, Managing Director of Hilton-Baird Collection Services, commented:

“It is deeply worrying how much of a financial impact late payment is continuing to have on businesses. It has been well documented how late payment is disturbing cash flow, but the effects run much deeper.

“That the average business now spends almost a third of its credit control resource chasing overdue debt just serves to illustrate how businesses are struggling to win the battle against late payment. The credit control process needs to start even before the order is placed, with robust account opening procedures and terms and conditions of sale, but not enough businesses have the resource to get the basics right, let alone manage the entire process. The older a debt becomes, the trickier it is to recover so even more time and resource has to be invested in securing payment, further increasing the burden.”