A new survey from Siemens Financial Services Limited in the UK has found that the financial market squeeze is now affecting a substantial proportion of British companies – with companies in the IT and Telecommunications industry hit particularly badly, and pressure is set to mount further in the second half of 2008.
Research amongst 736 UK firms, including a representative sample of all industries and company sizes, reveals that a quarter (25.3%) of British firms have seen their cost of borrowing rise since the international financial markets crisis in 2007, with IT and Telecommunications (OEMs and resellers) slightly above – 29.6% have seen their borrowing cost rise (see Graph 1). More worrying is that 15% of companies (27.8% in IT and Telecommunications) have been told by their bank that interest rate increases are on the way. This year alone 18.5% of IT and Telecommunications companies have seen their banks adjust their credit limits downwards, which is dramatically worse than the UK average of 8.7%.
The ICT channel faces a dual challenge – not only are they confronted with worsening credit conditions from their relationship bank, but the sectors of the economy into which they sell are also under immense financial pressure and delayed purchasing decisions threaten to compound channel woes. There is an urgent need for the ICT channel to find innovative ways of facilitating sales, making the decision making process for their customers as smooth as possible – which may explain why 22% of the sector envisage their usage of asset finance to increase during the remainder of 2008, significantly higher than the UK average of 13.4%.
However, not everyone in the sector is suffering, as a further 14.8% of companies stated they had experienced no negative effects, indicating a polarisation of business in their exposure to the tightening credit climate – although this figure is still well below the UK all sector average of 22.5%.
Peter Austin, General Manager, Siemens Financial Services Limited, comments, “This survey clearly shows the ongoing crisis in the financial markets is filtering through to the real economy of the UK, most particularly in the ICT sector. Clearly they are being affected by the double blow of tightening credit conditions and customers’ delaying investments due to their own cash concerns. Generally, if companies are to soften the impact of the credit crisis on their business, and in doing so help the British business community avoid a prolonged recession, then they must find ways of maintaining cash-flow, supported by access to liquidity at a realistic and reasonable cost.“
“Recent years have seen easy access to credit at low cost. Now times have changed radically and rapidly, emphasizing that cash is a scarce resource and that consistently successful businesses are those that treat cash as a scarce resource even when it is not. There is no magic solution for firms that are genuinely over-stretched. However, improved working capital management in these circumstances will help a wide range of companies to remain cash flow positive and to access re-investment capital. Resellers can help their customers learn this important financial lesson by encouraging the use of finance at point-of-sale.”