Small firms worst hit by downgrades

Posted 09 Jun 2010

Almost 9000 New Zealand firms had their risk ratings downgraded during the first quarter of 2010, according to research of 20,000 companies by credit reporting agency Dun & Bradstreet.

While recent government stimulus has buoyed consumer spending, that may not continue through the rest of 2010, putting more pressure on many small businesses.

John Scott, general manager of Dun & Bradstreet, said the 20,000 firms were assessed on two risk ratings - a dynamic delinquency score and a financial distress score.
The downgrade meant those 9000 firms would be classified as having a higher risk of financial distress over the next 12 months, he said.
Recently established and smaller firms made up the majority of credit downgrades in the research. Scott said younger, smaller firms typically did not have the experience and resources to fall back on in times of economic distress.
"They perhaps haven't had a lot of exposure to recession - this could well be the first recession they're going through," he said.

The original article can be found here.

While it can be difficult to establish if your customers are profitable, this underscores the need to have tight terms of trade with your customers, especially if they themselves are small businesses.