By Karen Axelton
Positive news for businesses: Access to trade credit is easing, CFO Magazine recently reported. According to the latest monthly report by the National Association of Credit Management (NACM), trade credit access for manufacturers, in particular, is back to pre-recession levels.
In fact, the association’s report describes trade credit availability as making a “startling improvement.” The NACM’s trade credit indicator rose from 61.7 in December to 64.8 in January—reaching its highest level since January 2007.
Chris Kuehl, economic analyst at NACM, told CFO that bankers are extending more credit to suppliers, which is making it easier for them to ease credit restrictions. Manufacturers are typically more likely than service businesses to benefit at the beginning of an economic recovery because they have collateral to put up for loans, unlike many other industries.
Overall, the NACM report has other encouraging signs of growth:
- The overall credit managers’ index score of 56.4 for January signals “more rapid expansion in the near future.” Any reading above 50 shows the economy is in growth mode. The index reached its lowest point, 39.7, in January 2009.
- Creditors are rejecting fewer applications.
- Fewer accounts are going to collections.
But it’s not all good news. As with many other signs of economic recovery, it may take a while for the easing of trade credit to trickle down to small business owners. In a separate report by the National Federation of Independent Business, just 5 percent of small business owners said their suppliers’ trade credit policies eased last year.
And it’s easy to see why small to midsized suppliers would be unlikely to ease credit restrictions. In an uncertain recovery, it’s still crucial for small companies with tight cash flow to vet every new customer carefully. With bank loans and lines of credit still so difficult to obtain, entrepreneurs have fewer options for recovering from the financial hit of a nonpaying customer.
Image by Flickr user Erik Soderstrom (Creative Commons)
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