Recovery or Return to Recession?

In the second quarter of 2010, Britain's economy grew by a whopping 1.1% - the highest growth rate in four years, and almost double the expected growth rate for Q2. With the construction industry growing by a reported 6.6% (slightly inflated by a delay in Q1 projects affected by the weather), and with business services and finance growing by 0.9%, the signs are that we appear to be moving in the right directions.

However, with continued cut backs and contraction in the public sector, there is certainly pressure building up on the private sector to maintain it's current growth momentum, and essentially haul the rest of the country through these difficult time. The question is though, can they do it?

The positive growth rate which we have seen in the first half of the year, does not appear to be having a positive influence on consumer confidence, or indeed on SME's. With the dreaded double-dip recession still very much in peoples minds, it would appear that confidence is actually down, and is in stark contrast to what some of the figures would have us believe. The July Consumer Confidence Index is down for a fifth month to -22, the lowest this has been since August 2009 when the economy was still contracting. With many people considering the Consumer Confidence Index to be a strong indicator of what the economy itself will do in the future, then the continual slide certainly makes the idea of a double-dip recession all the more real.

This pessimistic mood would also appear to be reflected in the mood of British SME's, as well as on the high street. According to RSM Tenon's Business Barometer, 76% of entrepreneurs have still not seen business levels return to where they were in 2007, prior to the credit crunch. To compound this further, over 50% believe they will waiting another 2 or more years before things return to normal, or to the levels of trade seen before the crisis. It seems that a double-dip recession is certainly a real fear in the business world, and one which we should all be looking to protect ourselves against.

With RSM Tenon believing there are likely to be more than 20,000 business failures this year, we can expect to see figures which will rival the records seen in the last two years. It would appear from this that credit insurance, and credit insurance companies, will have a vital role to play protecting UK business from the potentially catastrophic effects of bad debts. Should these figures be correct, then it appears essential that we do not see a repeat of the wholesale reduction in cover we saw last year, but instead see steady, prudent underwriting, with support being given to companies at the time it will really be needed. It should also be remembered though that credit insurers are not here to support bad businesses, and that we should not be surprised to see cover being withdrawn from those who are failing.

Remember, credit insurance is here to aid companies in making prudent risk decisions, and not here to underwrite every piece of trade carried out. Communication will remain the key, and as long as your credit insurer is involved in this dialogue, then positive decisions will always be the aim. With most credit insurers eager to write new business, and most competing well on price and credit limits, the time seems right to start taking prudent steps, and insure what is possibly your companies largest asset - it's sales ledger.

For more information, please email me at samf@exchangeis.net, or contact me on twitter - Sam_exchangeis.

Cash Flow: Keeping Businesses in Business

A lot has been written recently about how the economy is effecting all business at the moment, from the largest multi nationals, to the one man bands who are setting up by themselves for the first time. One thing which does not seem to be getting the column inches it really needs though, is cash flow, and the importance of protecting what is essentially the life blood of a company. Without cash, a business cannot operate. It's as simple as that.

According to recent research carried by BACS, British SME's are having to wait an average of 41 days beyond terms to get paid, a situation which is clearly putting unnecessary strain on company cash flow. In fact, Lovettes have also recently said they seen a rise in late payment demands of around 24.5% recently, showing that companies are at least trying to address the situation and get their over due payments in. This can almost be a case of bolting the door when the horse is out of the stable though. The damage may well have already been done.

This strain on cash flow is clearly taking it's toll on British SME's, and as recently as a week ago, Forge Dam Ltd, a 2.2 million turn over company based in Leeds, cited "severe cash flow issues" as the principal reason for going into Administration.

Couple this constant late payment, with the fact that the availability of credit still appears to be an issue, and the future certainly looks difficult for companies. Currently more loans are being paid off than granted. Since 2008, lending figures have been positive in only 3 months, indicating that the money to lend either is not there, or isn't being released by the banks. This would certainly seem to be an issue the coalition government is taking note of also, with George Osbourn and Vince cable apparently set to spell out the dangers of a double dip recession if bank lending continues to dry up. With a significant number of loans set to mature in 2010, the banks certainly have a major part to play in the future of small businesses.

So surely, we need to be looking at solutions to this problem which companies can access easily, and will allow them to trade with confidence, and more importantly, get paid. Unfortunately, I don't have the power to solve the banking issues we have, or the money to issue the loans personally, so we have to be looking at solutions that are closer to home, and this is where the shameless plug come in!

Credit insurance is now sold as a package which is designed to address many of the issues that can affect a companies cash flow, and certainly help to ease the pressures that can be suffered. No longer is it a product which is solely used to claim against an insolvency (although this is still integral to the policy), but a product which should work alongside a credit control department.

Users are encouraged to credit check potential new customers, helping to identify those who are more likely to cause payment issues in the future, and all customers can be monitored to identify changes in payment patterns. The principal is to avoid the cash flow issues, by avoiding the companies who cause them. A customer is not a customer until they have paid. With many companies eager to take on new business, but worried about late payments, an aid to help ease the pressure is certainly out there.

Access to comprehensive legal and collections services also helps to strengthen the hand of the credit control department, with the threat of legal action carried out by an insurance company carrying a lot of weight. Especially when companies are monitored to see if they are slow payers, with cover potentially being withdrawn on the main offenders. By passing any severe issues to a credit insurer, it can free up more time to chase payments from others more quickly, and more effectively.

Finally, the policies still protect against the potentially catastrophic effects of a bad debt. A sudden large whole in cash flow can often cause a company fail themselves, the "domino effect" continuing until either a company is insured, or is simply big enough to take the hit. With cash seemingly at a premium though, it seems harder to find the companies who can soak up this debt, and harder to find those who are willing to take the risk and enter into large contracts that could leave them exposed to a catastrophic debt.

Credit insurance may not be able to solve all of a company's problems, but with the need to protect key assets becoming more an more important, surely it time for more attention to be paid to what for most companies is their largest, yet most vulnerable asset - their sales ledger.

For more information, please contact me at samf@exchangeis.net, or through twitter (sam_exchangeis) or find me on LinkedIn.