Tighter Credit Terms Squeezing Small Businesses

Small businesses are being forced to rethink their sales strategies by suppliers tightening credit terms in response to economic downturn.

Research by credit management specialists Graydon UK found that more than half of 400 firms surveyed plan to play it safe by further tightening their credit criteria during 2008, with only two per cent feeling confident enough to extend their current credit term policies.

As a result of this ‘safety first’ culture, businesses in all major sectors are having to defer or cancel plans to launch new products or ventures because they cannot get the credit they need.

“Suppliers are looking long and hard at those companies who are asking them for credit and with business insolvencies increasing at an alarming rate the ‘safety first’ culture is spreading across all major industry sectors,” said Graydon managing director Martin Williams.

“This is entirely understandable in a market where the sound management of cashflow could mean the difference between success and going to the wall,” he continued. ”But for entrepreneurs looking for the breathing space offered by credit when purchasing raw materials and business services, this could be the determining factor in a decision not to launch a new product, service or business venture.”

The Institute of Credit Management (ICM) advised small businesses to make suppliers aware of their payment terms and to contact them in advance if they foresee difficulties

“At the outset it is worthwhile setting out a general policy on payment and making sure your suppliers understand what your payment terms are,” said ICM director general Philip King. “For example, you might pay within 30 days of receipt of invoice, or you might do a monthly cheque run.”

“When your own circumstances do not allow payment within the agreed terms, or you find that your suppliers are tightening their credit management procedures, causing you unforeseen cashflow problems, you need to communicate with them early and regularly to agree the way forward.”

© BHP Information Solutions 2008

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