Start-up Discrimination

23 June 2010

Research1 published today by Creditsafe, the business intelligence experts, reveals that nearly one-in-10 (9%) companies will avoid trading with a business if it is less than a year old.  These company owners and operators are discriminating against start-up companies when looking at new customers, suppliers and business partners, preferring to trade with enterprises that have an established financial and credit history.

This cautious approach threatens the success of start-up companies which are vital for a sustained economic recovery in the UK.  Furthermore, with over 364,000 new companies launching in 20092, many existing firms are overlooking a large pool of potential trading partners which could be contributing to their own business growth.  Though start-up companies have a higher rate of failure, Creditsafe is urging businesses to assess potential customers, suppliers and business partners on a case by case basis to enable them to maximise the opportunities available to them whilst minimising their risks.
As well as a reluctance to trade with companies that are less than a year old, UK business owners and managers are routinely looking for less obvious indicators as to the financial strength and stability of a potential customer or supplier.  Over half (52%) of UK businesses will not trade with a company that is only contactable by a mobile number.  Similarly, 51% of UK businesses will not trade with another company if they only have a PO Box address.  A website is regarded as a powerful indicator of permanency and reliability.  Around one-in-eight (12%) business owners will not trade with a company that does not have one. 

David Knowles, Business Development Director, Creditsafe, said:  “There is a danger we could choke the fledging economic recovery if companies refuse to trade with start-ups purely on the basis that they are a new company.  Businesses need to take sensible steps to accurately establish the financial health and creditworthiness of trading partners rather than relying on gut instinct and preconceptions.  People have the right to be cautious when a company gives a mobile phone number only and they should also remember that having a website in itself gives little indication of a company’s creditworthiness.”

Factor  and Percentage of UK business that would regard this as a reason not to trade with an enterprise:  
If a company only has a mobile contact number   52%   
If a company only has a PO Box address  51%   
If the company has not yet filed accounts       21%   
If the company doesn’t have a website   12%   
If the company is less than a year old  9%    
[Source:  Creditsafe]

Knowles continued:  “Small to Medium Sized Enterprises (SMEs) are the lifeblood of the economy and should of course receive active encouragement, however newly established firms are losing out on gaining new business because procurement departments are unconvinced that they have the sufficient resources and financial stability to meet contractual obligations when new business intelligence solutions can help companies establish the underlying creditworthiness of an enterprise.
 
“Creditsafe is one of the few agencies that provides credit ratings for newly incorporated limited companies that have yet to file a set of accounts with Companies House.  Our solution takes into consideration factors such as the demographic profiles of company directors and CCJ analysis to develop an accurate risk profile for a newly formed enterprise.  This enables business owners and operators to establish the likelihood of a newly formed enterprise going insolvent, which empowers them to make an informed decision about the extent to which they wish to engage with that enterprise."

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