Business news 13 March 2023

James Salmon, Operations Director.

The true cost of late payments. Silicon Valley Bank. Budget predictions. Sunak flags Inflation Reduction Act concerns.  And more business news.

The true cost of late payments

The true cost of late payments are laid in a report from the Federation of Small Businesses (FSB).

Time is Money: The Case for Late Payment Reform, lays out the failure of current measures in place to hold late payers to accounts and demands small businesses are given better protection.

The report finds on average through 2022, quarter-on-quarter that:-

• 52% of small businesses experienced late payment.
• 25% reported an increase in late payments.
• That education, construction, administrative, professional, scientific, transportation, IT, arts and human health and social work were among the most affected sectors
• Small businesses in south-east and east of England, and Northern Ireland were the more likely to experience late payments.

What were the true cost of late payments to small businesses?

• 37% of small businesses had applied for credit to manage their cashflow.
• 62% of the British public say businesses should be paid within a week.
• 55% of the British public would support more controls.

The FSB report made the following proposals:-

• Audit committees of large companies should be given  oversight of payment practices and reporting on progress in their annual report.
• Government should publicly commit to limit the maximum payment terms to small suppliers in law by 2027 if the situation does not improve.
• Block late payers from tendering for public procurement contracts.
• Impose 30-day payment terms, which should be a maximum throughout supply chains.
• Mandate the Small Business Commissioner to investigate potential instances of poor payment proactively, instead of only when a complaint has been made.
• Make the Prompt Payment Code (PPC) mandatory for all local authorities.
• Create a new local authorities Payment Practice League Table with financial incentives for those at the top and penalties for those at bottom.

The FSB Policy Chair Tina McKenzie remarked: “Enough is enough. Late payments in the UK have continued to spiral out of control, while since 2019 Ministers lost the momentum and enthusiasm to make a difference. We now need to reinvigorate this agenda, and to push for growth and productivity – the best way to do this is to sort out the UK’s poor payment culture. Our report highlights the urgent need for change and the importance of fair payment practices, and sets out a clear set of reforms.”

“Small firms are already being stretched beyond their limits with rising energy bills, rampant inflation, and a mounting cost of living crisis. Cash flow is already tight, and that is compounded by being kept waiting months for invoices to be paid, which a serious roadblock to growth and investment. This also hinders productivity due to the excessive time and effort expended on chasing late payments. It’s a double whammy that is stifling business success, and in turn holding back the UK’s economic recovery – but is something that’s entirely avoidable.”

“Big businesses shouldn’t be using small firms as a bank. It’s time for them, too, to step up and take responsibility for poor payment practices.”

“These reforms will make a clear difference to the bottom lines of small firms right across the economy. Thousands of small firms are unnecessarily going bankrupt every year due to late payment practices. We are determined to eradicate this issue and the current Government could use Time is Money as a catalyst for change.”

If you suffer from late payments – talk to the Credit Protection Association on 020 8846 0000 and ask how we have been helping small businesses fro over 100 years tackle the true cost of late payments.

Silicon Valley Bank

HSBC has picked up for £1 the UK arm of the Silicon Valley Bank (SVB) after the US bank collapsed into administration last week.  Although the UK arm of SVB was small with just over 3,000 business customers, its collapse would have presented a risk for a sector which the government views as pivotal to the UK’s future economic success.

The bank – the US’s 16th biggest – was forced to sell US Treasury bonds at a significant loss to shore up its balance sheet (following a fall in deposits over the winter) and a bank run quickly followed after investment managers withdrew funds. As shares were suspended, regulators took control of the banks $175 billion deposits.

Chancellor Jeremy Hunt says he has been working with Prime Minister Rishi Sunak and Bank of England governor Andrew Bailey “to come up with a solution,” but insisted there was no risk to the UK’s financial system as a whole from the collapse of the lender. Mr Sunak has also insisted that there was “no systemic contagion risk” following the collapse of SVB.

More than 200 bosses of UK tech companies this weekend signed a letter addressed to Mr Hunt calling for Government intervention, warning that many fintech firms do all of their banking with SVB, “and will therefore go into receivership imminently unless preventative action is taken.” SVB, which focuses on lending to technology companies, was shut down by US regulators on Friday, having failed to raise $2.25bn to plug a loss from the sale of assets that were affected by higher interest rates. This marks the largest failure of a US bank since the financial crisis of 2008.

The collapse of the bank caused a marked drop in global stock markets as investors ran for safe havens with financial stocks taking the bigger hit as traders worried about contagion as a recent report from the FDIC said global banks were sitting on significant losses in the US Treasury bond and other bond holdings of around $620bn due to rising global interest rates.

Perversely, the flight safety actually caused bond prices to rise, reducing the risk.

Economy rebounds with January growth

Figures from the Office for National Statistics (ONS) show that the economy expanded by 0.3% in January, with the rebound following a 0.5% contraction in December. While the data shows month-on-month growth, the economy stagnated in the November to January period compared with the previous three months. The report also shows that January saw a fall in output in both the manufacturing and construction sectors.

Darren Morgan, the ONS’s director of economic statistics, said that while the economy “partially bounced back from the large fall seen in December … Across the last three months as a whole and, indeed over the last 12 months, the economy has, though, showed zero growth.” Prime Minister Rishi Sunak said the economy “has proved more resilient than many expected, but there is a long way to go.”

Yael Selfin, chief economist at KPMG, said a recession was “still on the cards despite a brightening outlook” as consumer spending remains weak and households continue to be squeezed by elevated prices and higher interest rates.

Ruth Gregory, deputy chief UK economist at Capital Economics, commented: “We doubt January’s strength will last and our hunch is that there will still be a recession.” However, economists including the National Institute of Economic and Social Research think-tank and investment banks Goldman Sachs and JPMorgan have predicted that the UK will avoid a downturn.

PM: Budget to cut debt, not taxes
Prime Minister Rishi Sunak says the Budget will prioritise reducing the country’s debt rather than cutting taxes, noting that the Government will also focus on reducing inflation. Mr Sunak said: “The economic priorities are to halve inflation, reduce debt and grow the economy. Those are the right priorities and I’m confident that the Chancellor’s Budget will deliver on all of those.” Adding that halving inflation is “critical,” he said: “Inflation is the worst tax of all.” Asked if he was comfortable that the tax burden was near a record high, Mr Sunak told reporters: “Over time, I’ve been very clear my ambition is to cut people’s taxes.” Meanwhile, Chancellor Jeremy Hunt has also suggested that now is not the time for tax cuts.

Hunt set to opt for cautious Budget
Jeremy Hunt is expected to lean toward caution with his Budget, opting against increased spending and permanent tax cuts due to the challenging medium term economic outlook. It is believed that the Chancellor will use the better-than-expected performance of the economy to extend the Government’s existing cost-of-living support measures, such as the Energy Price Guarantee. The Office For Budget Responsibility (OBR) will publish its latest economic forecasts alongside the Budget, with the report expected to show that Government borrowing for the 2022/23 and 2023/24 financial years will be around £30bn lower than it had predicted back in November. Ruth Gregory, deputy chief UK economist at Capital Economics, says any hopes that the Chancellor will be able to deliver significant permanent tax cuts or spending increases, while sticking to his previous debt-reduction plans, “will probably be dashed by a downgrade to the OBR’s prediction for GDP growth in the medium term.” Tim Sarson, head of tax policy at KPMG UK, said: “Despite the economic ups and downs since the Autumn Statement, there have been some glimpses of hope. However this does not mean we expect this to herald a new period of fiscal loosening.” He added: “The public finances continue to be tight and so the focus remains on reducing borrowing and keeping an eye on inflation.”

Budget set to break down work barriers
Chancellor Jeremy Hunt says his Budget will deliver a package of measures to break down “barriers” to entering the workforce, including reducing the cost of childcare. Under Budget plans that have already been announced, the Government is expected to pay childcare support to parents on universal credit up front instead in arrears, while a £646-a-month per child cap on support for universal credit claimants is expected to be increased. Other measures designed to reverse a rise in economic inactivity since the pandemic include changes to fitness-to-work tests for those with medical conditions. Speaking to the BBC, Mr Hunt suggested he was unlikely to announce further childcare support for families that do not qualify for Universal Credit, describing this as “expensive.” He added that while ministers “would like to help everyone … you can’t always do everything at once.”

Business investment faces £50bn blow
Analysis for the Confederation of British Industry (CBI) suggests that the UK will miss out on a £50bn boost to business investment each year if officials fail to introduce a replacement to the super-deduction. The research shows that if the Treasury does not introduce a full expensing regime for businesses, Britain will lose £52bn of business investment per year by 2030/31. The CBI is calling on ministers to introduce a permanent mechanism that allows businesses to deduct the full cost of investments from their profits. CBI president Brian McBride says a “double blow” of the super-deduction expiring and corporation tax climbing from 19% to 25% “would send a worrying sign about Britain’s status as a place to do business.” Mr Hunt is expected to use his upcoming Budget to set out a new capital allowances regime for businesses to offset the rise in corporation tax and the end of the super-deduction measure.

Chancellor to offer SMEs investment tax breaks
Chancellor Jeremy Hunt is to offer SMEs big tax breaks for investment in the Budget, with allowances for investment in new plant and equipment to be quadrupled from £250,000 to £1m a year. While Mr Hunt will resist calls to scrap April’s increase in corporation tax to 25%, the company tax rate for smaller firms earning £50,000 to £250,000 will be held at 19%.

Sunak flags Inflation Reduction Act concerns
The Prime Minister says he is talking to the United States and European Union about the US Inflation Reduction Act amid concern it could make European markets uncompetitive. The act, which offers $369bn subsidies for electric vehicles and other clean technologies, has sparked fears in Europe that it could put companies based on the continent at a disadvantage. When asked if the measures could drive investment away from the UK and into the US, Rishi Sunak said “my general view is that it’s better for all of us to maintain free and open markets.” Chancellor Jeremy Hunt has called the act a “very real competitive threat.”

Wall Street optimistic over luring UK firms for listings
The New York Stock Exchange is “very optimistic” that it can attract more British companies to list in the United States over the coming years. Cassandra Seier, head of international capital markets at the New York Stock Exchange, said it “feels like there is some tailwind” behind British companies looking at listings in the US, highlighting the depth of liquidity in the US market and the risk appetite of its investors. She commented: “We have a very robust pipeline of companies coming from all over the world, including the UK. The United Kingdom is the third largest country for us from an international standpoint.”

Mortgage costs to rise as BoE ‘messed up’ on inflation
Mortgage costs are likely to rise due to the Bank of England’s efforts to address inflation and its interest rate rises, according to Bank of America analyst Alastair Ryan. He pointed to a recent increase in swap rates, which are used to price fixed-rate mortgages, saying it has seen the Bank’s credibility “diminished” among investors. Mr Ryan says investors are starting to question the Bank’s message that inflation will fall sharply this year and drop back towards its 2% target, warning that interest rates “may well need to go meaningfully higher, because the Bank of England have messed up inflation profoundly.” Mr Ryan added: “If the Bank of England is behind the curve and ends up doing more than they were going to, and the market thinks that’s going to happen again, then mortgages will end up being dearer.”

 Steel needed for economic resilience
Business and Trade Secretary Kemi Badenoch says the UK needs to find a way to support the steel industry as it is vital to the long-term strength of the economy. She said: “The reality is that steel is very, very challenging but we do need steel, certainly from an economic resilience perspective,” adding: “We can’t just decide that we’re going to rely on China. But how to make sure that that is value for money, not just for the businesses and communities but for taxpayers is a very complex question.”

Suicide fear over rising costs
Charities have warned of an increase in the number of people contemplating suicide as they “cannot cope” due to rising costs. While ministers say they are committed to protecting the most vulnerable and are increasing benefits in line with inflation, charities supporting those with chronic diseases or disabilities have called for an overhaul of the benefits system. Personal Independence Payments, which are claimed by around 3m people who have disabilities and mental health conditions, are set to rise by 10.1% from April 2023.

Wandisco investigates potential fraud
Tech company Wandisco has hired forensic accountants to investigate a suspected £12.6m fraud at its business. The firm has appointed FRP Advisory to lead an independent investigation into accounting issues. It has tasked non-executive directors Peter Lees and Karl Monaghan to support FRP’s investigation. The company’s shares have been suspended from trading on London’s junior AIM market while it investigates the issue. Wandisco has said it faces “significant going concern issues” after discovering irregularities in its accounts, adding that it believes a senior sales employee generated suspicious purchase orders that vastly inflated its revenues last year. BDO, Wandisco’s auditors, declined to comment but said the company’s annual accounts have yet to be filed.

Why should you become a CPA member!

The Credit Protection Association (CPA) has been assisting thousands of UK businesses to get paid, since 1914. We have seen many financial crises, this one will be particularly deadly for suppliers for some time to come.

CPA eases cash from tardy debtors – Efficiently, Effectively, Economically and Ethically. And we provide credit information so you can monitor and assess your key customers.

Unlike other credit management companies, we offer our members a fixed annual subscription regardless of how high the debt value maybe!

No face-to-face meeting required – just call Peter Uwins, CPA’s National Sales Manager, on 020 8846 0000 (business hours) or email nsm@cpa.co.uk today.

When you see your money come in, you will be so glad you used CPA.

The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections

Do you have a commercial late payer that is causing you grief? Use CPA’s no-win, no-fee, commercial debt recovery service!

If you have a particular business customer who is late paying and causing you sleepless nights, why not offer it to CPA for purchase on recourse?

CPA’s collection department will then pursue the debt. We will be liable for any costs incurred and then when we have recovered the debt, we will pay you the net principle debt recovered less our percentage.

Once you have enjoyed that success then you can consider the more cost effective membership which includes our Overdue Account Recovery service and Status/Credit reports as well as a range of other complimentary services.

Just call  020 8846 0000 and ask for Godfrey Nelson or Cris Shirley (business hours) or email debtpurchase@cpa.co.uk today.

The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.

Get compensated for previous late payments

Have you been paid late by business customers in the last six years?

Maybe you no longer work with them. Under legislation, you are entitled to  compensation you for those late payments you have suffered.

You put up with the PAIN – now claim the GAIN!

Claim late payment compensation (LPC) from former business customers who paid you late in the last six years!

CPA (LPC) Recoveries is using our bespoke software and decades of experience to do just that for our clients

Check our compensation calculator to see how much your business could be owed!

Discover NOW the potential value of late payment compensation hidden in your sales ledger!

The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.