UK bears the brunt of credit crunch

Firms in this country are harder hit by economic climate than US counterparts, according to KPMG research

UK firms are feeling the full force of the credit crunch more keenly than those in the US, according to research.

Professional services company KPMG surveyed 342 companies with revenues between £250m and more than £20bn, and found that 76 per cent of those in the UK were feeling a high level of pressure from stakeholders, compared to just 23 per cent of US firms. Three quarters of UK companies are facing delayed payments from customers and reduced access to credit, compared to just 23 and 14 and per cent respectively on the other side of the Atlantic.

The increased cost of credit is problematic for 71 per cent of companies in the UK, compared to 19 per cent in the US, while 73 per cent of firms in this country are faced with suppliers demanding early payment in comparison to only 12 per cent of stateside companies.

Of the 96 per cent of companies which use cash flow forecasting, a quarter of those based in the UK were accurate to within 10 per cent, with 64 per cent of US firms achieving that level of accuracy. 88 per cent of UK companies anticipate they will have to delay or revisit refinancing plans during the next two years.

One positive for UK firms is that just four per cent are planning on reducing capital expenditure in that time, compared with half of US firms.

In addressing cash flow challenges, 49 per cent of all respondents claimed they plan to negotiate longer supplier payment terms, while 46 per cent indicated they would tighten customers' credit lines. But KPMG advisory director Andrew Ashby claimed that such moves were short-sighted.

He said: “Adopting the same old blinkered approach of squeezing your suppliers and delaying payments is a zero sum game where only few winners will emerge. Companies need to be more focused on gaining improved visibility and control of cash and to work smarter across the supply chain to create win-win opportunities that reduce the cash cycle for all participants.”

A total of 46 per cent of all respondents are concerned the economic environment will result in exposure to bad debt, while 84 per cent claimed cash management was a top priority, although 25 per cent do not link executive compensation to cash flow targets.

Ashby added: “By gaining visibility and control of cash flows, companies will be able to identify the areas where they can generate more cash. While working capital tends to be a large area of opportunity companies should also look at cash generation from tax, treasury and other assets on the balance sheet.

"To drive sustainable improvement, leading companies embed cash management into the strategic decision-making process. One way to do this is for companies to incentivise executives to manage cash flow better. Those that do have fared better over the past three years and expect to suffer less in the future.”