According to a new report, British businesses are leaving each other out of pocket to the tune of £75bn. This news comes as trade credit is reaching record highs and is a possible wrecking ball the country’s recovery.
The report carried out by the Credit Management Research Centre warned this widespread debt could cause a rise in company insolvencies. The trade credit gap between companies has been growing and growing as businesses borrow for one another as banks are unable to do so.
This means that UK businesses, especially small and mid-sized ones, are in debt to their suppliers and customers for £75bn – clearly not a sustainable level.
Trade credit, the credit doled out by non-financial firms to customers, has now reached a massive £327bn. This makes it 20% larger than bank credit and makes it the largest source of funding for the country’s businesses.
These kind of levels have not been seen for some time. During the 2004 downturn trade credit only reached £94bn in comparison.
John Keating, the European managing director at Taulia, is worried. “Trade credit is being used as a blunt instrument by many companies with outdated practices poorly adapted to today’s new economic environment. We believe this is a serious threat to the UK economy.”
The report looked at 15m limited company reports to get its findings. It also showed that between 1998 and 2012, 80% of business-to-business transactions were on credit terms.
Image by Chris Potter.