CREDIT management moved centre stage in the recession as British industry and commerce grappled with late payment and bad debts. As recovery gradually gathers pace, new dangers emerge.
Tim Corbett, director of business development at Barclays Commercial Services, fears that as recovery gathers momentum, business may go into sales mode and forget the lessons of credit control learned in hard times.
The latest quarterly financial trends survey from Trade Indemnity, the leading UK credit insurer, warns that the rise in the average value of debts more than 30 days overdue to a peak of pounds 145,000 in the first quarter could be an early warning of overtrading. Although some increase in bad debt is through more trade being done, the size of long overdue debts could yet topple otherwise healthy businesses, the survey warns.
"The weakness of bank lending to the private sector in 1992 and 1993 seems to have led to firms borrowing from one another by paying late, which ultimately affects the credit standing and survival chances of those late in the queue for payment."
There are signs, however, that the lessons of recession have been taken to heart. Rising volumes of factoring companies, business information suppliers and credit insurers reflect not just rising levels of trade, but gradual growth in the market.
Member companies of the Association of British Factors and Discounters have more than 10,000 small and medium-sized business clients compared with 9,000 a year ago. Trade Indemnity says demand for credit insurance is surprisingly high, as insurance is usually bought on the way into a recession rather than on the way out. Barbara Bennett, corporate affairs manager, said the buoyancy could be because businesses believe it will be a slow haul out of recession and they are worried about their customers overtrading.
Growth, however, is occurring from a low base. Credit insurance is bought by only 15 per cent of eligible companies, according to TI. Dun & Bradstreet, the largest supplier of business credit information in the UK, with 45 per cent of the total market, estimates that for every order where credit information is sought, a further 14 are accepted with no information.
Companies that take credit control seriously often tend to use it at an earlier stage in the selling process. They credit-vet potential customers before attempting to sell to them, rather than after ordering.
Phillip Mellor, senior analyst with Dun & Bradstreet, said: "The gospel we are preaching is that there is a full circle of information. Credit control does not just come into play when a sale is made." D & B Logic provides risk and opportunity analysis and identifies the strengths, weaknesses and gaps in a client's portfolio of customers. A client can decide it is selling too much to one industry sector and not enough to another and redirect the sales effort accordingly.
Mr Mellor points out that new technology has allowed greater flexibility in the supply of …