UK Credit Managers’ Index Reflects Economic Recovery

Confidence levels among UK credit managers have again shown sustained signs of improvement, and companies are marginally improving the speed with which they collect the cash according to the latest Credit Managers’ Index produced by the Institute of Credit Management (ICM).

The survey, covering the first quarter of 2014 and sponsored by software provider Tinubu Square, also found that UK companies are still working hard in the current climate to generate working capital and lower costs, with 60% saying they are considering ways to improve their trade credit risk management through technology.

With a headline index of 59.3 for Q1, the index is 0.8 points higher than the Q413 reading of 58.5, a 7.4 point year-on-year (YoY) increase from 51.9 and in line with the major economic indicators that showed UK gross domestic product (GDP) up 0.8% in Q1. The gap between the US CMI and the UK index has also widened significantly by 3.2 points.

The UK manufacturing sector has again continued to show signs of improvement, up 3.1 points to 60.7 (from 57.6 vs UK manufacturing output gain of 1.3%); confidence within the services sector dropped slightly by 0.4 points to 58.6 (vs UK services output increase of 0.9%).

Favourable factors across the two sectors have both showed slight improvements, with manufacturing up by 2.7 points to 72.7 and services also up by 2.6 to 68.7. The figures behind this increase included a rise in the number of new applications (+3.3 to 64.4) as well as an upturn in sales (+1.6 to 72.6). The index for order book has also seen an increase of 3.0 points to 73.3.

The index of unfavourable factors was unchanged at 54.7, with all seven sub factors now at or over the crucial 50 point mark. Days sales outstanding (DSO) – the measure of the average number of days that a company takes to collect the money after a sale has been made – edged up 0.1 to 56.3 and the index relating to the number of credit applications that were rejected decreased 1.5 points to 50.0.

Eleven per cent of respondents stated that the doubling of business investment tax relief in the 2014 UK Budget would lead to them investing more in technology for their businesses, but 82% said it would not impact their investments in this area. A quarter of those investing in software to improve their trade credit risk management (60%), said the main driver for this was to increase their working capital and lower costs.

Philip King, chief executive (CEO) of the ICM, said that although the rate of improvement slowed, there is room for optimism: “The encouraging signs of a recovery are still there and plain for all to see, but there is the risk that they are being hampered by a slowdown in credit sales, new credit applications and order book across the board.

“However, all of the seven unfavourable factors improved with disputes showed the greatest improvement (up 4.4 points to 53.9). Interestingly, for the combined index, all three favourable factors rose in Q1 – with sales and order book well over 70 points.”

Geographically only Scotland was in the red at 46.5 (less than 50 points), meaning it was the only region to experience a decrease in combined CMI scores. Northern Ireland has improved dramatically (up 12.5 points to 50) and the rest of the UK was ‘green’. In terms of sectors, only businesses involved in the area of personal and household goods were in the amber; the remainder was green.

Mike Feldwick, head of UK and Ireland at Tinubu Square, said: “It’s encouraging to see the real benefits that companies feel they can get from technology to free up cash and improve their credit position. Much is said of the reluctance of banks to lend but frequently businesses have cash available that just needs to be unlocked.”

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