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Study Looks at Changing Fortunes of Credit

  • 26/06/2018
  • Jane Bray

Results from a five-year study, carried out by the Chartered Institute of Credit Management (CICM), on the use and application of credit in driving the UK economy have been published. It found that credit managers are more confident today than in previous years, despite ongoing uncertainties over the economy and Brexit.

The Changing Fortunes of credit and the UK Economy 2011-2016 shows the Credit Managers’ Index (CMI) starting at 52.1 and ending more than seven points higher at 59.8 by the end of 2016. Any score above the 50.0 threshold is seen as ‘positive’.

The study looked at the level of credit being sought and granted by credit managers across both the manufacturing and services sectors, acting as a primary indicator of the actual level of business being conducted.

At its lowest, the Index dipped to 49.7 at the end of 2011, as payments were delayed, businesses held onto their cash and business volumes decreased. At its peak, the Index reached 60.2 by the beginning of 2015, with every sector showing signs of improving performance and increasing confidence, despite the uncertainties of a national election at that time.

In the latest survey (Q1 2018), the headline Index stood at 55.4, which is currently more optimistic than the market as the FTSE All Share dropped by eight percent. The index of favourable factors all performed well in the first Quarter with increases across the board: Credit Sales rose by 4.4 to 70.6; Order Book was +2.8 higher (69.8); and New Credit Applications climbed an impressive 7.4 to close on 66.4.

Results from the index of unfavourable factors, however, were mixed, with four of the seven measures dropping points. However, the remaining three did show signs of improvement: Days Sales Outstanding (DSO) was +0.9 higher (56.1); Bad Debt Provision increased by 4.6 to close on 48.9; and Overdues climbed 6.1 points to 52.3.

Chief Executive of the CICM, Phillip King says the latest results show steady progress: “Although marginal, we have seen a positive overall improvement in the Index. The confidence in both Manufacturing and Services appears to have increased steadily in the last quarter. This progress is positive but it is important to remain cautious as things can change quickly with various potential pitfalls on the horizon.”

The CMI’s results show a shift in regional confidence, with Wales, East Midlands, Northern Ireland, North West and North East all falling below the 50-point threshold. Scotland, London and South East continue to lead the way with over 60 points.

The CMI’s sector-specific results show all but three of the 19 sectors meeting or exceeding the positive threshold. The three sectors that are struggling are Insurance (42.0), Basic Resources (48.0) and Chemicals (40.0). Oil and Gas and Personal and Household Goods are setting the pace, both on 70 points.

The CMI is a diffusion index, producing scores of between one and 100 (typically in a range of 40 – 60). Ten equally weighted factors are included – three favourable and seven unfavourable and the Index is calculated on a simple average of 10 factors.

A copy of the report can be downloaded at https://www.cicm.com/credit-management-index/