Business news 4 January 2022

James Salmon, Operations Director.

Late Payment Crisis. Debt burden sees signs of distress increase. Half of all UK small businesses to raise prices in 2022. UK insolvencies expected to rise in 2022. Employment news. Britain to hold sway in global economy in years to come. And more business news.

Late Payment Crisis

The late payment of invoices is threatening the survival of  over 400,000 small businesses according to the FSB.

The Federation of Small Businesses (FSB) has warned that late payments, high inflation and increased administration for businesses importing and exporting to Europe could see huge numbers of small businesses collapse.

Of the 1,271 small businesses owners surveyed by the FSB study, 30 per cent said late payment of invoices had increased over the last three months while a further 8 per cent said that late payment is now threatening their survival.

With 8% saying late payments are putting their firm at risk, this suggests 440,000 of the UK’s 5.5m small firms could be forced to close due to late payments this year. Only 6 per cent said that a change in payment terms has been agreed in advance.

The FSB said late payments, inflationary pressures and Brexit-related red tape could reduce the overall number of UK SMEs.

The survey also saw 78% of firms report an increase in overheads, while 74% of small exporting companies said international sales were flat or falling over the past three months and 38% reported a decline in exports.

FSB national chairman Mike Cherry said: “The small business community diminished in size over the past year and, unless action is taken now to tackle the challenges it faces, history is set to repeat itself.” with up to 440,000 small businesses facing closure this year due to late payment alone, according to the study.

Small business confidence dropped in every quarter of 2021.  Late payment had been “destroying thousands of small businesses” before the pandemic and the pressures of Covid have only made matters worse, according to Mike Cherry.

He added: “If this Government is serious about levelling up, it needs to get serious about helping community businesses struggling to make ends meet as costs surge. Increasing the small businesses rates relief ceiling to £25,000 would take 200,000 more firms out of this regressive tax altogether, primarily in levelling-up target areas, meaning more investment, recruitment and retention within local economies up and down the country.”

The Government has yet to make announcement on its response to a consultation on new powers for the Small Business Commissioner, an office set up to tackle the late payment culture in the UK.

Just last week the FSB had warned that the viability of thousands of small businesses is at risk amid a surge in energy costs. The FSB’s Craig Beaumont described this as a “cruel pincer” that will “lead to some businesses realising they cannot continue as is, either [by] trying to slash costs or, the last thing they want to do, lose people. Or they could have to give up altogether, shutting the business down and letting everyone go.”

Pointing to concern over energy costs, Mr Beaumont said: “It is micro businesses which are the ones in trouble. Many small businesses tend to buy their energy via fixed rate deals but when these end they face much higher charges.” “For some, energy costs could prove to be an existential threat, particularly for the fragile end of the small business sector which is emerging from Covid-19 restrictions,” he added.

Debt burden sees signs of distress increase

The Telegraph’s Tim Wallace looks at the debt burden taken on by firms amid the pandemic, with Government-backed loans amounting to almost £80bn. He says that, generally, big companies “borrowed heavily then rapidly repaid the funds when it turned out they could withstand the hit.” However, SMEs took on more than £46bn of extra debt, increasing their burden by more than a quarter between March 2020 and March 2021, with debts only declining by around £5bn since.

Mr Wallace goes on to warn of the challenges ahead, noting that furlough is over, a moratorium on winding-up orders has ended, a VAT break for hospitality is being withdrawn, business rates will rise from the end of March and a moratorium on the eviction of commercial tenants will also expire.

Julie Palmer of Begbies Traynor comments, saying she is seeing an increase in signs of distress among businesses, particularly since the courts reopened, enabling creditors to take action on debts. While insolvency numbers are still below their pre-pandemic levels, Ms Palmer has identified 800,000 companies that are feeling the strain.

Half of all UK small businesses to raise prices in 2022
A survey by accountancy network Moore UK has found that half of small businesses in the UK plan to raise their prices next year while one in three plan to make redundancies now the safety net of furlough has been removed.

Those planning to make redundancies are on average considering shedding 45% of their workforces over the next six months. Maureen Penfold, Chair of Moore UK, comments: “It’s surprising to see so many businesses are considering reducing staffing numbers so substantially. Policymakers should be careful not to assume that the economy is back in rude health – especially taking into account how the new restrictions just implemented may further impact businesses.”

UK insolvencies expected to rise in 2022
Experts are predicting a rise in insolvencies in 2022, as Covid loan repayments become due and interest rates rise. Energy-intensive sectors as well as construction, hospitality and retail are expected to be hit.

Energy supplier collapsed after BP called in debts
Energy supplier Pure Planet collapsed after minority shareholder BP called in debts of almost £53m and refused to provide fresh investment, a report from administrators PwC has revealed. Pure Planet was among the first of 26 suppliers which have gone bust since August amid a six-fold increase in wholesale gas prices.

Free returns hit retailers
Analysis by ReBound, a returns specialist for big retailers, shows that a third of fashion items bought online are sent back, while data from NShift, a returns management company, shows that each return costs an average of £20 due to factors such as shipping, storage and repackaging. KPMG says returns have become “something of a Pandora’s box”, costing British retailers £7bn a year.

Hospitality venues lose £10k each in the week before Christmas
Data from industry body UK Hospitality shows that British pubs, bars and restaurants lost £10,335 on average in the week leading up to Christmas compared to pre-Covid sales levels. This means average losses exceed the maximum £6,000 cash grants offered to affected venues by Chancellor Rishi Sunak as part of a £1bn support fund. The study also reveals that Christmas Day takings were down 60% compared with 2019. Reflecting on the findings, UK Hospitality chief executive Kate Nicholls said coronavirus restrictions must be “kept to a minimum and must be lifted as quickly as possible to help an already beleaguered sector.” She also called for VAT, which is set to return to 20% in April, to be kept at the current 12.5% and called on ministers to deliver enhanced rates relief “in order to help the industry recover and return to growth.” British Chambers of Commerce president Baroness McGregor-Smith has also urged the Government to extend business rates relief and the emergency rate of VAT beyond the end of March, adding a call for a “focused” furlough support scheme.

Workplaces told to plan for absences of up to 25%
The Cabinet Office has said the rate of coronavirus infections could see up to a quarter of staff off work as employees self-isolate. Ministers have been tasked with developing “robust contingency plans”, with public sector leaders asked to prepare for “worst case scenarios” of 10%, 20% and 25% absence rates. Labour’s deputy leader Angela Rayner says the Government has “dithered and delayed, leaving contingency planning to the very last moment.”

Three-quarters of office workers are considering quitting or changing jobs
A poll commissioned by Juno shows that three-quarters of office workers in the UK are considering quitting their jobs or changing their careers. The study reveals that 57% of all staff are suffering from bouts of low morale, close to a fifth believe their workplace environment is toxic and 18% think their bosses do not care about their mental wellbeing. While 64% of workers believe their bosses are doing all they can to address shortages, 36% see management complacency as an issue that will worsen morale. The survey also found that more than 30% of white-collar bosses are struggling to fill vacant positions, while a further 13% foresee this becoming an issue soon.

Inflation could pass 7%, economists say
A Times poll of economists suggests inflation, which hit 5.1% in the year to the end of November, could exceed 7% this year. Over a third of the 32 economists expect inflation to peak between 6% and 6.5%, while 15% predict it will surpass 6.5%. Two of the economists, including a former Bank of England rate-setter, said inflation would climb beyond 7%. On interest rates, more than 90% of the economists polled expect it to rise to at least 0.50% by the end of the year, with the Bank having increased the base rate from 0.10% to 0.25% in December. The majority of those polled expect the value of FTSE 100 companies to increase by the end of 2023, and around one in ten predict it will remain at its current level. Three quarters of those polled expect business investment to grow next year. On growth prospects, Jonathan Gillham, director of economic modelling and econometrics at PwC, said. “Rapid growth in 2022 should not be confused with the base effect from a large decline in 2020 and a patchy recovery in 2021.” He added: “The countries that have weathered the Covid storm the best are those that have achieved relatively even growth over the last three years.”

Quarter of people expect finances to worsen
A quarter of people expect their finances to worsen in the first few months of 2022, according to a wealth and wellbeing study by LV=. According to the survey, 33% of people said their finances had already deteriorated over the past three months. As living costs surge, 48% of people said they had seen their total monthly living costs increase, while 9% had seen a decrease. Some 20% said they were putting less money into savings, while 16% were saving more.

HMRC fraud squad recovers £1bn in five years
More than £1bn has been recovered from the proceeds of crime and tax offenders since the formation of a specialist fraud squad that brought together HMRC’s criminal and civil investigators in April 2016. The Fraud Investigation Service (FIS) has been pursuing the suspected proceeds of crime using enforcement powers, both criminal and civil, to disrupt the movement of cash and assets. Since the FIS was launched, more than 1,200 seizures of cash and assets have been made while on operational duty. The investigations have led to 157 criminal convictions in the UK since 2020, with £218m recovered in the past year alone. FIS director Simon York says reaching the £1bn milestone within five years “speaks volumes to the dedication, hard work and skill of FIS to recover the proceeds of crime from those who try to cheat the system.”

Britain to hold sway in global economy in years to come
The Centre for Economics and Business Research (CEBR) expects global GDP to top $100trn (£75trn) for the first time ever in 2022 – two years earlier than predicted. China will overtake the US as the biggest economy in the world by 2030, two years later than initially thought, and India will become the world’s third-largest economy by the early 2030s.

The UK will be overtaken by India in 2023, the CEBR says, but this should be the only place it loses in the world league table. The UK will grow more than France, becoming 16% larger by the mid-2030s and hold sixth place in the table until well into the 2030s, from fifth now, despite the rapid rise predicted for many Asian economies.

Douglas McWilliams, deputy chairman of CEBR, said: “Tech is the dynamic factor in economic growth and Britain is investing more in this area than France and Germany put together.” Meanwhile, inflation is likely to become a growing problem for the world economy this year, the CEBR warns, stating that if the non-transitory elements are not brought under control, then the world will need to brace itself for a recession in 2023 or 2024.

Britain’s economy to outpace rest of the G7 in 2022
Analysts at Goldman Sachs say the UK is on course to grow faster than every other nation in the G7 in 2022. The bank’s economists predict the UK will grow by 4.8% in the coming 12 months, well above the 3.5% predicted for the US, 4% for Germany and 4.4% for both France and Italy. Canada and Japan’s GDP are also set to grow significantly slower.

Elsewhere, HSBC expects British GDP to rise by 4.7% in 2022 while the IMF also expects Britain to outgrow the rest of the G7 club in the coming year. Martin Beck, senior economic adviser to the EY Item Club, said the recovery will depend on consumers retaining their confidence in the face of the outbreak of the Omicron variant and spending some of the cash they saved during the height of the pandemic.

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 charge our members a fixed annual subscription irrespective of how high the debt value is!

It takes less than 17 minutes to see how you would benefit, do you have the time now?

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

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.