Credit crunch: poor control costs SMEs thousands

Its survey of 49 small and medium-sized enterprises (SMEs) operating in the manufacturing sector revealed that 65% did not check their customers’ credit status, 40% did not know what a credit score was, while nearly 70% never checked their own score.

Also 71% of manufacturing firms did not check their suppliers’ credit scores.

Nick Blaine, partner at legal specialist Eversheds, told FoodManufacture.co.uk: “Smaller scale businesses could do more to protect themselves in terms of credit awareness.”​

“It is important to score your own credit rating to know how you are regarded by potential customers.” ​Credit rating problems could result in SMEs losing out on a contract with a new customer, rejected finance applications or being refused materials from a new supplier.

“Of more immediate importance ​[than knowing your own credit rating], is scoring the rating of your customers​ [to ensure prompt payment],”

Domino effect​

Unless SMEs check the credit ratings of their customers, they could become vulnerable to a domino effect, where late or missed payments puts them on the receiving end of their client’s financial problems, he added.

Topics directly impacting the profitability of SME food and beverage manufacturers will be on the agenda at Food Manufacture’s SME Business Leaders' Round Table. The free half-day event will take place at legal specialist Eversheds’ Leeds office on November 29. Click here for more details.

To guard against late or missed payments, SMEs could arrange early payment terms or negotiate what is known as a retention of title clause. Although not suitable for perishable goods, this ensures that ownership of the goods does not accrue to the customer until the SME has received payment in full, said Blaine.

Simon Streat, md of Experian’s UK SME business, said: “Manufacturing is one of the industries in the UK that suffers most from cash flow issues, because they have to purchase raw materials and pay staff long before they are paid for the finished product. ​

It relies heavily on trade credit and a reliable supply chain. Despite these factors there are so few small and medium sized manufacturing firms that check their own score and even fewer checking their customers and suppliers.”​

Affordable​

Checking the credit score of firms before doing business with them is straightforward and affordable, and it could make all the difference, he added.

Meanwhile, about half of the UK’s 861,000 SMEs are owed debts totalling £33.6bn, according to a recent survey by payment firm Bacs.

On average SMEs are owed £39,000 in overdue payments with the money typically arriving two months late.

To book your free place at Food Manufacture’s​ Business Leaders' Round Table, which will take place at Eversheds’ Leeds office on November 29, click here , telephone 01293 610231 or email sbbqznariragf@jeoz.pbz​.

The event is free to attend for UK food and drink manufacturers.