Trade credit cuts hit smaller firms

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Small and medium sized businesses have been hit by a significant reduction in trade credit since 2009, worth an estimated £4.7 billion, according to Experian, the global business information services company.

Experian says that before 2009 trade credit and overdrafts were the most flexible and popular ways for SMEs to get short term funding and manage their cash flow.

Since then, trade credit - where a business allows its customers to obtain goods and pay an agreed number of days later – has fallen to an all time low.

Experian’s Max Firth said:“Trade credit can be a lifeline to SMEs who often rely on it to buy materials for the job.

“Businesses dealing direct to trade need to consider the benefits to their organisation of offering credit terms, particularly to smaller, sound businesses that just need short-term support to avoid denying themselves the opportunity to grow through new customers and sales.

“We are not advocating that businesses throw caution aside. Simply take steps to ensure that they are fully informed on their customers and suppliers’ current situation, so they can mitigate risk and make informed decisions about how much trade credit they can offer to whom with confidence.”

Experian says the smallest firms have been hit hardest.

In 2007, around 90,000 businesses with turnovers of less than £50,000 had access to trade credit, but that number had almost halved by the following year. Businesses with turnovers of around £250,000 turnover bracket also saw a marked decline.

Businesses with a turnover of under £1 million saw a marginal fall, while access to trade credit remained broadly the same for businesses with a turnover of more than £10 million.