are credit reports damaging your business

ROSS STRANG LIMITED The Business Fitness Centre

1

Are credit reports damaging your business?

Ed StrangROSS STRANG LIMITED

www.businessfitnesscentre.co.uk

@ netLinked Bishop’s Stortford


2

IntroductionI am Ed Strang, an experienced Chartered Accountant & former Finance Director of an international services company. I established ROSS STRANG LIMITED and started the Business Fitness Centre recently – a business advisory service dedicated to helping you and your business achieve success. In addition, to business strategy, finance and commercial advice we also specialise in credit management services.I joined a network of former senior directors, Stewart Enterprises Limited, with extensive business experience including unrivalled knowledge of the credit reporting industry. Together we have developed tools to help business owners and managers [and the accounting / audit profession] understand credit management and its impact on your business. We can help you to optimise the credit report for your business.

Corporate Credit Report [also known as your “Business File”] There are over 2.6m limited companies in the UK. Each company has a Business File from incorporation, building up a history and credit profile. This is based on information filed at Companies House – including Memorandum & Articles of Association; forms confirming the appointment and resignation of directors, issue of shares & other legal notices, annual returns and annual accounts.



3

What is a corporate credit report (or Business File)?Credit agencies such as Dun & Bradstreet, Experian, Equifax and Riskdisk produce up to 29ft. of information on each UK and international business. This covers the history of your business as a limited company, including latest accounts. Certain suppliers include payment history trends based on their access to large corporate sales ledgers!

Why use credit reports?You need to know who you are doing business with. A simple example, if your customer cannot pay your invoices, you suffer 100% loss of cash inflow ….. but you still have to pay wages, suppliers and overheads …... AND this dramatically reduces your profitability!

Do you use credit reports (to monitor)?• Customers• Suppliers• Other trading partners

Do you know what your credit report tells ALL interested parties?Good or Bad Credit Score?Is it accurate?



4

Who views your corporate credit report?Customers – Existing and NewSuppliersBusiness PartnersBanksTendersGovt. Depts.CompetitorsPotential Acquirers ……………………………………………………….. and Criminals

Why do they use credit reports?Risk management – credit exposure / track record / continuity of supplyCompliance with corporate guidelinesPlanning, including acquisitions

Again, Do you know what your credit report tells ALL interested parties?Good or Bad Credit Score?Is it accurate?



5

Does he understand your business?


6

Is your report adversely affecting …….• Sales• Business development• Tender competitiveness• Supplier pricing – reducing your competitiveness and margin• Bank credit rating & terms• Hiring senior staff?

Why? What influences the credit report reader?• Low credit score or “Credit Suspended”• Poor financial ratios ….. Fair - or unfair (to be explained)• County Court Judgements• Borrowings• Late filing accounts• Late filing annual returns• Payment history



7

Credit ManagementAccounting firms are tasked with producing the statutory accounts and having them filed at Companies House on behalf of clients

The client sees this as a compulsory task , a piece of red tape , a chore One could argue they treat this lightly , they have little real interest

Our experts have analysed literally hundreds of thousands of sets of accounts over the last 30 years. As accounts are produced to a standard , its understandable that there are very few differences between the lay out and the content, but

Statutory accounting has changed over the years! The regulations have changed!

Some would argue that the biggest losers are those who analyse the finished product to assess and protect themselves from commercial risk.



8

Important changes affect the outcomeThe information, content (abbreviated filing regulations) and reliability (removal of audit) of the information filed at Companies House for over 94% of GB Limited has reduced dramatically over the past 20 years.

Removal of Audit & Small Co Threshold £90,000> Increased to £150,000 Increased to £500,000 Then £1.2 Million Then £2.4 Million Then £4.6 Million Now £6.5 Million (and less than 50 staff) SMALL?

The volume of access by Credit Control, Business Development, Supply Chain Management, Local Authority, Non Govt. Organisations and Banks has increased dramatically - and will continue to do so - especially during tough trading conditions and a difficult lending environment. Over 10m searches last year!Your Credit Report and the way it being interpreted is more important to the future success

of your business than it has ever been.



9

Abbreviated accounts – do NOT show• Sales• Gross Profit• Overheads• Dividends • Breakdown of Debtors• Breakdown of Creditors• Bank Overdraft

Analysis is almost impossible• Is turnover, margins, overheads increasing / decreasing? • Did your business make a profit (& pay a dividend) or make a loss?• Do you have short term obligations to meet ……. Or directors loans, which will not be

payable for over 12 months?

Does this matter ………. Absolutely!! This changes the EXTERNAL image of your business!!



10

Credit ManagementThe accounts you produce are readily available to any individual or enterprise in the world. Our focus is not on the enquirers who access and analyse the accounts which you have prepared.

Our focus is on the conclusions they reach Conclusions based on the accounts prepared for you business And the knock-on effect these decisions will have on your business

Effects which can be far reaching Effects which the MD is acutely aware of but rarely understands why they are happening

Some will are argue that Accountants have lost millions in lost fees Others would argue those seeking to mitigate risk are the biggest losers Arguably, it is the company being assessed that loses out!



11

The Company being assessed, could be your business If you pass the supplier vetting then whatever transaction, project or contract they wanted to engage in would not be Held up Delayed or Lost Fail the vetting process and the MD is likely to be aware they did not win. The MD of an SME may not know what credit rating they have, but they do know they can rarely afford to miss out on any opportunity.

What percentage of businesses would get a Green Light? 80 % 60 % 40 % 20%

The most common rating (c60%) set by D&B , Equifax, Experian & Riskdisk is ZERO – Code Red



12

External Interest In Your Accounts Companies House reports in 2010 that 98.4% of all business files are accessed (viewed) within 60 (SIXTY) SECONDS of the new account information going public.

Business Information Agencies (Like D&B , Equifax, Experian & Riskdisk) have electronic updates & normally have new accounts analysed and interpreted in a new report within 24 Hours.

Companies that have an interest in your business will be alerted to the new assessment in the time it takes an electronic signal to reach them!!

What will the next set of accounts produced for your business trigger?

The impact of Stage 4 Effect can be devastating when credit limits and contract limits are withdrawn.

Warning – Act Now

Credit Limit Withdrawn

Banks activate secured

chargesBanks call in overdrafts

Trade suppliers put accounts

on stop Insurers prohibit additional

trade credit supplyDeals in progress are lost



13

What can you do to improve your credit reports 1. Review the ever changing statutory accounting process from a Credit Management perspective, rather than an accounting perspective.

2. Business owners should treat the production of annual accounts as a managed process. Traditionally, they may not have the skills or knowledge, and few consider it important.

Business owners quickly realise that this is more to do with revenue generation, winning business and facing fewer road blocks ahead.

3. Understand the information to be presented & opportunities to help credit analysts improve your credit score. This is often simple house-keeping, better transparency and might even be timing!

A firm of Accountants in Ayrshire commented “I have been a CA in the UK & Canada for 40 years and have never considered these issues from the Credit Management perspective. It makes complete sense but you need to come at it from that angle. I think I am in shock.” This is not unusual!



14

The opportunity to take control If you know what analysts need to positively rate your business, then you can review your current processes and if appropriate improve them.

We believe that at least 60% of companies should be coded green (with a reasonable credit score) – and our training will ensure that you get a rating which reflects your real position.

Our clients will then have an improved capability in bidding for work and projects Our clients can move forward without artificial obstacles in their way Our clients enjoy improved revenue generation Our clients can be confident on the impression gained by any would be enquirer

Never heard of this ………?Ask your accountant, why they haven’t addressed this issue for your business!

Don’t accept stock answers that “competitors will use this info….. “ or “it will cost a lot more.”

I am happy to supply & discuss your latest credit report, without obligation. Call 07798 744106 now.



15

Final thoughts

We are dedicated to True & Fair View and all guidance is focused on ensuring Limited Companies only look as strong as they actually are. We consider that for a variety of reasons the majority of companies in the UK actually look poor on paper, when in fact - with greater transparency and a True & Fair View was obtained - they would be much stronger.

Be careful how you interpret credit reports on your customers, suppliers & other trading partners!

My experience – as a Finance & Commercial Director - shows that many credit reports are misleading. I spent precious time to get a better understanding of customers & suppliers ….. But many companies & govt. depts. will simply remove your business as a trading partner!!

We consider Credit Repair Companies who seek to remove negative information by unlawful means to be unethical.

Don’t let misleading credit reports damage your business



16

Credit Management Strategy from

are credit reports damaging your business

Economy & Finance