New research has revealed that 65% of UK manufacturers do not check their customer’s credit status, risking late payment or no payment at all.
The global information services company, Experian, found a worrying lack of credit awareness amongst the UK’s SMEs, with 40% oblivious of what a credit score was and nearly 70% never checking their own.
Many manufacturers failed to realise that these issues could result in loss of contracts with potential customers, refusal of materials from a new supplier or having finance applications turned down.
Simon Streat, managing director 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.”
Failing to check credit scores could leave firms unable to complete jobs if they choose a supplier with a poor credit score who faces business closure. This could leave them with unfinished contracts and the possibility of a damaged relationship with their own customers.
A low credit score can affect a business’s ability to access finance or attract new customers, while it could also force suppliers to impose more stringent trading agreements. Small
Mr Streat added: “Seventy per cent of manufacturing SMEs may be blind to their credit scores, but their larger customers, suppliers and banks certainly won’t be. Failure to address credit problems may put small and medium sized businesses at a big disadvantage, as many organisations will be put off working with a company that has a low score. It is important for businesses to monitor their credit score on a regular basis to ensure it reflects their situation accurately and to be able to take action to resolve any issues that are highlighted.
“Simply taking the steps to check the credit score of firms before doing business with them is straightforward and affordable, and it could make all the difference.”
The research found that many businesses tended to rely on a small pool of suppliers and customers, and a single customer loss or change in terms could have a large impact on the financial health of the business.
According to Experian, many low credit scores could stem from a lack of detailed data about the business or a failure to file complete or accurate information.