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Discussion paper on small business reporting brings more confusion than clarity

26 August 2011

The Government’s Discussion Paper on simpler reporting for the smallest businesses appears once again to have missed the fundamental point: businesses rely on more information, not less, to extend credit, and without credit, the longed-for business recovery will not happen.

Philip King, Chief Executive of the Institute of Credit Management (ICM), says that the new Paper brings more confusion rather than clarity as to the Government’s position and thinking: “On the one hand, they talk about the current regimes as being ‘burdensome, costly, and adding little value’ and on the other that SMEs could make ‘an increased contribution to the economy if they had better financial information available to them’.

“The simple question that our members have been asking is this: does the government really understand the role of credit in business?

“If it did, then it would understand that information is critical to making informed decisions and to facilitate trade, and that the need for information does not disappear just because your company is ‘small’. Indeed we would argue that the opposite is true: the smaller you are, the more information you may have to provide to demonstrate your creditworthiness.”

Philip highlights other parts of the document to support his argument, especially in relation to stock: “The Paper proposes a simplified ‘Trading Statement’ that would remove the need to account for such items as stock. How would that help? The amount of stock a business holds, its value, and how regularly it is replenished is fundamental in gauging whether to grant credit and how much credit to extend.

“It is this sort of wording as well as grouping creditors under the bizarre phrase of ‘other trading counterparties’ that makes me fear the issue is still not fully understood.”

There are some parts of the Paper that the Institute welcomes, including the proposal to provide a simpler means of filing of accounts online, the need to standardize reporting formats, and making better use of existing software, but in general there is still much more work to be done: “From the outset the Paper suggests that there has been a huge clamour for change and that the calls for a review have become more strident.

“I’m not sure who has been calling for change,” Philip concludes, “but it has certainly not been our members, and our members are on the frontline of granting or refusing the credit that businesses rely upon more so than any other source of cashflow funding.”