Can the survivors of recession cope with the recovery?

Despite official denials, there remains widespread evidence that small firms are finding it harder to obtain finance.

In a recent survey, the Forum of Private Business talked of “significant latent demand” not being met. Overdrafts were vulnerable, they found, with some members reporting that facilities had been reduced by more than 50%. But they were even more concerned by the number of factoring agreements that had been withdrawn and loan applications rejected.

Their pessimism is mirrored in the Business Confidence Monitor for Q3, 2010, produced by the Institute of Chartered Accountants in England & Wales (ICAEW). Though the financial state of UK businesses is improving, confidence is lower than in Q2, and turnover and profit growth since the start of 2009 stands at just 1.6% and 1.7% respectively.

Commenting, Michael Izza, CEO of ICAEW, said: “UK businesses that came through the recession are now facing the challenge of surviving the recovery.”

The need to be proactive

How do you ensure yours does? We tell our clients to keep in close touch with their bank and focus on demonstrating that they are actively managing their working capital.

Also, we have seen how much of a challenge credit control has been this year. Managing the risk will take more than the usual blinkered review of payment records – more even than regular credit checks on prospective as well as existing clients.

Our more credit-savvy clients are now scrutinising their clients’ dependence on others so they can identify and anticipate problems earlier in the business cycle. Our advice is to bring the finance function out of the back office and use its systems to provide better information on credit history to sales teams in the frontline.

Such information is invaluable for the business – but only when it is used where it will do most good.

Simon Wax is a Director in the Corporate & Business Services Team