UK businesses have been warned to get into the habit of checking prospective clients’ credit ratings to avoid the worst effects of the recession.
Online financial management service e-bcm said UK profit warnings had hit a six-year high, showing the strain the credit crunch is starting to put on businesses.
The company said a recent report has shown there were around 400 profit warnings from UK firms last year – a rise of 10% since 2006.
With the uncertain economic outlook, it is likely we will see a rise in the figure in the next 12 months.
It added that many companies are likely to start deferring payments, increasing the risk of bad debt, with the threat predicted to be even higher for smaller firms.
However, Dennis Scott, commercial director of e-bcm, said although smaller firms will be owed less than bigger suppliers in terms of individual amounts, they are likely to be more vulnerable.
He said: “In fact, they are likely to be in a much more fragile position than larger firms that are able to obtain extended overdrafts with the banks.”
Scott added that most small businesses would have difficulty coping with more than two or three serious bad debts.
“With profits falling and lower levels of economic confidence, we’re likely to see many more businesses running into trouble in the coming year,” he said.
© Crimson Business Ltd. 2008
