Despite the UK being officially out of recession, the gloom amongst British companies has not left yet. According to recent reports by Deloitte and the Bank of England, Chief Financial Officers (CFOs) across the UK have been increasingly less optimistic throughout the past two years, as they face rising credit costs coupled with slowing company revenues growth.

Confidence among British companies has taken the biggest drop since the bankruptcy of Lehman Brothers in 2008. Meanwhile, 33% CFOs are not optimistic about the future and expect a double-dip recession; while only 19% believe that company revenues will rise in the next 12 months.

As the recovery of the British economy is lagging behind those of the less developed countries, UK businesses are seeking international growth. Despite the increase in firms’ risk appetite, banks are reluctant to release the credit. The 2011 Q2 Bank of England Credit Conditions Survey echoed the view by concluding that firms expect credit costs to remain high, if not higher, for the next three months. To combat the situation, CFOs are now putting more emphasis on cost control and improving cash flow to fund their growth plans.

The report blamed the banks for a "small increase in funding costs" and a "slight" worsening of credit quality of credit cost overall. Business Secretary Vince Cable is concerned about the situation and urged the banks to stick to Project Merlin requirements, "we’ve got to make sure the banks honour their commitments under the agreement".

However, banks admitted that they do not expect to improve availability in the next few months. Banks have been facing "a little" increase in business default rates in the third quarter, and are weary of the rising trend.

To battle against the banks’ frugal lending and to finance investment internally, businesses across the UK are putting more emphasis on cost control and improving cash flow. MarketInvoice can improve small businesses’ cash flow by allowing SMEs to sell invoices on our online auction platform. Businesses then get cash in advance instead of waiting the invoices to be paid 30, 60 or 90 days later, with a much lower discount fee and higher advance rate compared to traditional high street receivables finance.

Additional Material

• “Small business credit costs to rise further, reports Bank of England”, The Daily Telegraph
• “2011 Q2 Credit Conditions Survey”, Bank of England (PDF)
• “UK finance chiefs’ optimism tumbles”, Financial Times
• “The Deloitte CFO Survey 2011 Q2 Results”, Deloitte (PDF)