Getting credit in this climate is crucial, particularly when so many UK businesses in the fashion industry are having to prove their viability to investors, suppliers and banks.
Yet thousands of these businesses are putting their faith into credit agencies and believe that they are not only regulated but all use the same methodology. The reality is they are not!Most do not realise that the credit rating lucky dip has been and continues to be an issue. And many often find there are huge disparities in ratings between the credit agencies.
In the worst case scenario, your business could be forced to cease trading due to these inconsistent ratings and the inability to obtain credit. On the flip side, you may rely heavily on credit ratings to decide whether and on what scale to contract with another business and could be dealing with a business where the reality of their position is being masked by an inflated limit.
Whilst there is unlikely to be any change amongst the agencies in the foreseeable future, do remember you have a responsibility to give credit agencies as much information as possible and give an explanation of the issues affecting your business and the trends in the numbers. Remaining a closed book, filing abbreviated accounts and refusing to supply information, will not help your cause either!
What can you do if you believe your rating is not correct
- Investigate the limits being offered on your company by the different agencies
- If it inconsistent then monitor for any changes
- If they are not consistent with the reality, then approach the agency with up to date information not in the public domain such as the latest management accounts. However be aware that not all agencies will be open to accept this information
- Be aware of factors other than obvious ones (court judgements and arrears) that can affect your credit limit; such as changes in accounting reference date, changes in officers of the company and moving a registered office.
Tips when rating your clients
- Identify the impact on the business if your customer were to fail
- If significant do not rely solely on the credit rating or limit
- Obtain additional information such as a business plan, management accounts or even a professional reference
- Ensure that the company you are investigating is the actual company you are contracting with
- Finally take advice from other professionals who can review the information obtained
Bobby Lane is a partner at Accountants and Business Advisors firm Shelley Stock Hutter LLP. He advises many fashion and creative businesses on all aspects of their business