Friday 10 August 2012
Wednesday 23 May 2012
Quality of credit reports
Credit ratings agencies have played a high-profile and pivotal role in financial markets since the downturn, with some of their decisions making headlines for all the wrong reasons. Regulators and industry experts have called into question the reliability and usefulness of credit rating agencies and, as new research shows, for good reason.
‘Our research proves what many critics of credit ratings agencies have been arguing for years – that the accuracy and informational value of corporate credit ratings is dishearteningly low. Ratings are not an optimal predictor of default probability. They explain little of the variation in default probability across firms and they fail to capture the considerable variation in default probabilities and empirical failure rate over the business cycle,‘ says Dr Mungo Wilson, Lecturer in Financial Economics at the Saïd Business School, University of Oxford.
Credit ratings remain the most common and widely used measure of corporate credit quality, a position challenged by a new paper from Dr Wilson and Jens Hilscher, Assistant Professor of Finance at Brandeis University.
This is an extract from a paper by Mungo Wilson, Saïd Business School, University of Oxford, and Jens Hilscher, Brandeis University.
What is your experience with the quality of credit reports. Are they accurate? Have you found any data errors? If you have - what was the reaction of the credit rating agencies?
The full paper is available at: http://people.brandeis.edu/~hilscher/CreditRatings_HilscherWilson_Jan2012.pdf
‘Our research proves what many critics of credit ratings agencies have been arguing for years – that the accuracy and informational value of corporate credit ratings is dishearteningly low. Ratings are not an optimal predictor of default probability. They explain little of the variation in default probability across firms and they fail to capture the considerable variation in default probabilities and empirical failure rate over the business cycle,‘ says Dr Mungo Wilson, Lecturer in Financial Economics at the Saïd Business School, University of Oxford.
Credit ratings remain the most common and widely used measure of corporate credit quality, a position challenged by a new paper from Dr Wilson and Jens Hilscher, Assistant Professor of Finance at Brandeis University.
This is an extract from a paper by Mungo Wilson, Saïd Business School, University of Oxford, and Jens Hilscher, Brandeis University.
What is your experience with the quality of credit reports. Are they accurate? Have you found any data errors? If you have - what was the reaction of the credit rating agencies?
The full paper is available at: http://people.brandeis.edu/~hilscher/CreditRatings_HilscherWilson_Jan2012.pdf
Tuesday 20 September 2011
SME's lack of credit awareness
Experian’s survey of nearly 700 UK small businesses found that 71 per cent did 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 revealed that 39 per cent of small businesses did not know what a credit score was, 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.
Simon Streat, Managing Director of Experian’s UK SME business, said: “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.
Why does this situation exist when bad and doubtful debts are running at an all time high?
The survey also revealed that 39 per cent of small businesses did not know what a credit score was, 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.
Simon Streat, Managing Director of Experian’s UK SME business, said: “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.
Why does this situation exist when bad and doubtful debts are running at an all time high?
Friday 26 August 2011
Friday 19 August 2011
Government should re-think on micro-business plan
The Institute of Credit Management (ICM) has launched a petition with Graydon UK, the commercial credit referencing agency, to prompt a Government rethink on plans to exempt micro-businesses from having to file accounts at Companies House – plans it believes will seriously hamper the economic recovery rather than encourage it.
The move follows the publication of figures from a recent survey of its 8000 Members that posed the simple question: if accounts for a potential customer wanting to place a relatively small order with you were not available at Companies House or via a Credit Reference agency, what would you do?
Nearly 37 percent said that they would not approve the order for immediate supply, reject the account and insist on cash in advance; 15 percent said they would accept the increased risk and trade anyway; and more than 48 percent said that they would ask the customer to provide financial data to support their application.
The findings support the ICM’s view that exempting micro business from filing accounts is wholly the wrong way of tackling what is a comparatively simple issue: businesses should be prepared to provide more information not less: “Without audited numbers that can be trusted, banks will not lend and suppliers will not extend credit to their customers,” says Chief Executive Philip King. “Growth will be restricted, not encouraged.”
The ICM’s survey follows similar research in June from Graydon UK that showed that 91 per cent of credit and finance professionals believe that the proposals will make it harder for small businesses to access trade credit, and that 87 per cent of respondents did not believe that the Government’s plans will help drive business growth.
'CreditMan' supports the ICM and Graydon UK and we urge you to support the petition, by going to: http://www.surveymonkey.com/s/8KGN5BH
The move follows the publication of figures from a recent survey of its 8000 Members that posed the simple question: if accounts for a potential customer wanting to place a relatively small order with you were not available at Companies House or via a Credit Reference agency, what would you do?
Nearly 37 percent said that they would not approve the order for immediate supply, reject the account and insist on cash in advance; 15 percent said they would accept the increased risk and trade anyway; and more than 48 percent said that they would ask the customer to provide financial data to support their application.
The findings support the ICM’s view that exempting micro business from filing accounts is wholly the wrong way of tackling what is a comparatively simple issue: businesses should be prepared to provide more information not less: “Without audited numbers that can be trusted, banks will not lend and suppliers will not extend credit to their customers,” says Chief Executive Philip King. “Growth will be restricted, not encouraged.”
The ICM’s survey follows similar research in June from Graydon UK that showed that 91 per cent of credit and finance professionals believe that the proposals will make it harder for small businesses to access trade credit, and that 87 per cent of respondents did not believe that the Government’s plans will help drive business growth.
'CreditMan' supports the ICM and Graydon UK and we urge you to support the petition, by going to: http://www.surveymonkey.com/s/8KGN5BH
Tuesday 26 July 2011
Q2 2011 administrations at the lowest level since before the financial crisis
Administration appointments in England are at their lowest level since Q4 2007, well before the current financial crisis, according to Baker Tilly Restructuring and Recovery LLP.
There were 553 administrations from 1 April to 30 June 2011 which is a 14% decline on the first three months of 2011 (643) and fall of 13% against Q2 2010.
The figures, compiled from advertised administration appointments in The London Gazette, show a decline across all regions in England except for the North East which has seen a modest increase.
Are we seeing the light at the end of the tunnel as far as administrations are concerned?
There were 553 administrations from 1 April to 30 June 2011 which is a 14% decline on the first three months of 2011 (643) and fall of 13% against Q2 2010.
The figures, compiled from advertised administration appointments in The London Gazette, show a decline across all regions in England except for the North East which has seen a modest increase.
Are we seeing the light at the end of the tunnel as far as administrations are concerned?
Monday 11 July 2011
Retail insolvencies are on the up whilst manufacturing are down.
The UK’s multiple retailers closed 20 stores a day on average across the UK between January and the end of May this year, according to data compiled on behalf of PwC by the Local Data Company (LDC). The data also revealed that across multiple retailers in 300 town centres, clothes, shoe shops and jewellers have been amongst the hardest hit in 2011. Supermarkets, convenience stores and cafes have bucked the trend showing growth in the first half of the year.
PwC’s latest retail insolvency statistics for Q2 2011, released kast week, have also revealed that there were 375 retail insolvencies this quarter, 9% more than the same time last year.
PwC research indicates that, since the start of the recession, financially troubled retailers have closed, or plan to close, on average half their store portfolios as the high street comes under increased pressure. PwC examined the announcements of eight high profile failed or struggling high street retailers and found that on average 51% of the total store portfolio have or could be closed.
In contrast manufacturing insolvencies are down 26% in second quarter.
It remains to be seen if these trends will continue.
PwC’s latest retail insolvency statistics for Q2 2011, released kast week, have also revealed that there were 375 retail insolvencies this quarter, 9% more than the same time last year.
PwC research indicates that, since the start of the recession, financially troubled retailers have closed, or plan to close, on average half their store portfolios as the high street comes under increased pressure. PwC examined the announcements of eight high profile failed or struggling high street retailers and found that on average 51% of the total store portfolio have or could be closed.
In contrast manufacturing insolvencies are down 26% in second quarter.
Data also from PwC confirms that manufacturing and construction have been the hardest hit sectors since 2009, although both did slightly better in the second qurter of 2011 than the first three months.
In total, 4,058 manufacturing companies collapsed between Q3 2009 and Q2 2011. The retail sector has also been badly hit more recently, with announcements from Thorntons clouding the skies of the UK recovery. In the same period, the retail sector has seen 3,513 companies collapse.
The reason for hope came from the comparison between Q1 and Q2 of this year – manufacturing insolvency was down by 26.5%. PwC’s manufacturing spokesperson Philip Hines said: “There still remains uncertainty over current manufacturing order levels and the continued strength of the recent manufacturing recovery. Unfortunately this could imply further insolvencies in the second half of this year."
It remains to be seen if these trends will continue.
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