The Federation of European Cre-dit Management Associations (Fecma) has warned that trade credit managers can only take responsible decisions if they have access to the necessary information.
In a statement this week, circulated by the Malta Association of Credit Management, which is a Fecma member, the Netherlands-based body said a widely publicised consequence of the financial meltdown of 2008-2009 and the resulting credit crunch has been the substantial reduction in bank lending for businesses.
For some areas of trade, such lending has dried up altogether. However, the increased pressure that this has placed on trade credit managers across Europe to try to ensure the continued support of their customers by way of trade credit has received less publicity. At the same time, however, equal pressure has been applied to make responsible lending decisions.
Fecma's council warned responsible decisions are founded on information being available to the credit grantor that is as up-to-date and complete as possible. The availability of information is crucial to the decision-making process and restricting information can only be to detrimental to credit grantors and recipients.
As businesses have to prepare detailed accounts for both their bankers and the tax authorities, the argument used to defend ever-increasing audit thresholds and abridged filed accounts is both erroneous and grossly misleading, Fecma said.
The association added that a turnover not exceeding £6.5 million cannot be considered 'small' by any reasonable measure, any more than a turnover not exceeding £25.9 million could be considered 'medium-sized'.
On the contrary, with small also being defined as up to 50 employees, and such businesses now numbering some 4.6 million in the UK alone, the sector represents a substantial chunk of any supplier's portfolio.
The successful business owner should know the financial state of his business at all times, and that would entail the maintenance of detailed accounts. Most insolvency practitioners agree that inadequate, poor, or just plain bad management are major causes of business failure.
Fecma Council believes that the maintenance of detailed accounts must be a fundamental requirement of any company owner or manager.
It warned the concept of abridged accounts sends out the wrong signals to the business sector and even encourages poor management.
Unsecured trade credit is the lifeblood of business, made even more important since the flow of funding support from the financial sector slowed to a mere trickle.
If trade suppliers are expected to continue to support their customers by trade credit funding, then they are entitled to access to the same financial data as a bank or any other financial institution. When governments across the world, and especially across Europe, make it increasingly difficult for suppliers to make sensible risk decisions, they are cutting off the lifeblood and in a bizarre way actually encouraging irresponsible lending, Fecma said.
Limited liability, as far as corporate bodies are concerned, has always been a privilege: the entrepreneur can operate without fear of losing his home or personal assets. Privilege has to come at a price, and that is full disclosure, FECMA said.