SMEs lack credit awareness

Small businesses do not check their customers' credit status, exposing them to a greater risk of being paid late or not being paid at all.

Small businesses show a worrying lack of credit awareness, research finds.

According to a survey of 700 UK small businesses by information services company Experian, 71 per cent do not check their customers’ credit status, exposing them to a greater risk of being paid late or not being paid at all.

The survey also reveals that 39 per cent of small businesses do not know what a credit score is, while 61 per cent have never checked their own score.

Businesses that do not check their scores are unlikely to be aware of any issues until they lose out on a contract with a potential new customer, are refused materials from a new supplier or are turned down for finance, Experian says.

According to the company, for small businesses many low scores can stem from a lack of detailed data about the business or a failure to file complete or accurate information, rather than underlying financial insecurity.

A low credit score can affect a business’s ability to access finance or attract new customers, while it could also force suppliers to impose more stringent trading agreements. Small businesses tend to rely on a small pool of suppliers and customers, and a single customer loss or change in terms can have a large impact on the financial health of the business.

Simon Streat, managing director of Experian’s UK SME business says, ‘Two thirds of small businesses may be blind to their credit scores, but their larger customers, suppliers and banks certainly won’t be.

‘Failure to address credit problems may put small and medium-sized businesses at a big disadvantage, as many organisations will be put off engaging with a company that has a low score. It is important for businesses to monitor their credit score on a regular basis to ensure it reflects their situation accurately and to be able to take action to resolve any issues that are highlighted.’

Alan Dobie

Alan Dobie

Alan was assistant editor at Vitesse Media Plc (previous owner of before moving on to a content producer role at Reed Business Information. He has over 17 years of experience in the...

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