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It seems like a serious understatement to say that times are hard for businesses in the current economic climate. Indeed, Equifax’s latest Business Failures Report shows there has been an increase of 7.1% in businesses going bust just from quarter two to quarter three of this year.

Gaining access to new credit is more difficult than ever, as lenders apply more stringent criteria to commercial funding and are unwilling to take risks by lending to companies whose financial history is limited. In addition, data breaches and fraud pose an even greater risk to organisations already struggling under the weight of recession.

So, as we approach 2009 with trepidation, businesses will be wondering how to tackle the challenges of the next 12 months. There is no need for a crystal ball, simply take positive steps to ensure you do not become a statistic in Equifax’s Business Failure Report next year.

Conquer that credit rating

Struggling with increased costs and reduced access to new funds, businesses need to take practical measures to protect themselves from the risk of failure. And it is more crucial than ever that firms focus on maintaining a good credit rating, keeping a close eye on their own financial status, as well as that of both prospective customers and suppliers.

SMEs are the most vulnerable, so they must do everything possible to ensure their own credit rating is kept positive. As well as making sure they pay their bills on time, businesses need to keep an eye on money owed to them and respond to any unpaid invoices by running checks on customers to highlight any signs of trouble. Checks should be carried out regularly as a customer’s situation can change rapidly. It only takes one customer going under to turn the fortunes of a small business.

Companies should also obtain a copy of their own business report to make sure they look their best to prospective suppliers and customers. It is possible that if a business has kept its credit rating positive, it may be able to use this to get better terms with suppliers, thus saving money and/or acquiring better quality supplies.

Suppliers should also be checked and monitored on an on-going basis, ensuring companies have a good source of raw materials and services to support their own activities. If a company does not remain up-to-date with the status of any supplier, they risk finding out only when the supplier has gone bust, that they will not receive their order. This could of course have serious consequences for any business.

However, bad debt isn’t the only challenge facing the business community in the coming year.

Facing up to fraud

ID fraud is an issue constantly in the press with a number of high profile cases where consumer data has been lost. But ID fraud doesn’t just affect individuals. Businesses, too, need to be aware of the risks because the reality is that information and data are more valuable to criminals than tangible goods and cash. And the effect it can have on a business is not only lost time and goods, but the much less tangible, yet more valuable, damage to reputation and brand value.

Without a great deal of knowledge or effort, a fraudster can change the registered office and trading address of a business. They can even change the names of directors of a company without those directors knowing. And once the trading address is changed, the fraudsters can go to town ordering goods from current or new suppliers to be sent to the new address. Any supplier carrying out a check on the details kept at Companies House will be unaware of any criminal activity and, using the company’s own well-established credit rating, will despatch goods to the fake address.

Of course, the legitimate business will not see these goods and the supplier will not be paid. Both parties will be blissfully unaware of the situation until the supplier chases the business for payment. But by then the fraudsters are long gone with the goods, leaving the victims to deal with the consequences.

There are, however, some simple steps that can be taken to help prevent company ID fraud. Always shred company documentation, bank account or company credit card details. It’s also worth investing in systems that help monitor any changes in company details. For example, some services will send an e-mail alert whenever there is any change to a company’s credit file details which will enable them to take immediate action if the changes were not made by the company itself.

But the reality is that corporate ID fraud is here to stay and could sink a business, even if sales are good and profits are on the up. Simple checking processes should, therefore, be mandatory when dealing with new customers and suppliers – and everyone in an organisation should be trained on those processes.

What will 2009 bring for your business?

With the UK on the edge of an official recession, the prospects for 2009 are going to be challenging at best. And whilst further interest rate cuts are expected, the predicted downturn in demand is likely to put every business at risk.

Practical steps to manage cashflow should, therefore, be the watchword for any organisation in the next year. It is important that businesses keep the following questions front of mind going forward in 2009, to ensure they are doing all they can to remain profitable: Are my customers a safe credit risk? Is my supply chain robust enough to cope with a business failure? Can we survive without further borrowing, or do we need a watertight case to present to the bank? And finally, does our business have procedures in place to alert us on fraudulent activity?

If you answer no to any of these questions, it is vital that you address these issues immediately and in the most effective way possible. By doing so you should have the best possible knowledge of the financial status of customers and suppliers, giving your business every chance of outliving the recession.
 

Nic Beishon,
head of commercial information solutions,
Equifax,
e-mail: credit.risk@equifax.com

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