Credit fuels business

With Banks being less than supportive of business I was astonished to hear the results of a survey conducted by trade credit insurer Atradius in relation to payment barometers and more relevantly, the business conducted on open credit terms as opposed to cash. This was circulated within CCR reports and news.

I accept of course this may have been a survey limited to Atradius clients but if reflected nationally, then I sense the period of suppressed activity and performance along with the expected second dip recession will last much longer than is necessary.

Apparently, Enterprises across the UK are showing a relative preference for the safety of cash-based sales as their preferred management tool. Some 47% alone of their B2B transactions are on open credit, 16% below the European average.

While significantly, 36% of credit based sales involved foreign buyers, 23% of UK respondents said they would not offer credit to overseas buyers.

Furthermore, 40% of British firms questioned said a need or desire to foster long term client and trading relationships were the prime reasons for offering open credit.

In the IT Distribution sector for example almost 90% of B2B sales are on open credit and I suspect similar high percentages may be found in other sectors. Even in export markets, the percentage was as high as 75%.

The statistics according to the Atradius survey make for worrying reading.

On the one hand, there is acceptance open credit is used to enhance client and trading relationships but on the other, the level of open credit is abysmally low – how can the two possibly relate?

More than 1 in 5 businesses would simply not trade with overseas buyers unless it was on a cash pre-paid basis. Such businesses are either doing exceptionally well and can pick and choose or alternatively are missing out on huge opportunities.

Open credit is recognized as a business driver and facilitator and credit management today, being so refined and precise has a crucial role in encouraging new and continuous sales growth. Avoiding bad debt or slower payment at all cost is an appalling negative reaction to recession and increased levels of bankruptcy as it merely serves to stagnate already declining business volume. Clam up, and your competitors will steal a march and retain the advantage.

What Enterprises need do is enhance credit management posture, contain and manage risk and bad debt while working processes across the business to meet the challenge of extended or slower payment. It is times like these that reward entrepreneurial and forward-thinking Enterprises, enhancing ten-fold client and trading relationships and assuring future growth. Credit fuels business, restrict it, and you will strangle flow.