Withdrawal of credit insurance exposes suppliers to greater risks

cash flow retail sme smes Nov 14, 2019

While it is true that running a business is always challenging the withdrawal of credit insurance is adding to the cash flow pressure on supply chains and in particular on retailers.

Trade credit insurance protects suppliers by minimising the financial impact if a customer fails to pay for goods and services.

The withdrawal of credit insurance is normally based on a company’s credit rating that in turn is adjusted based on disclosed accounts, county court claims, statements by directors and adherence to payment terms as information that is increasingly being provided by suppliers.

For more than a year, the retail sector has been in the spotlight due to the high profile restructuring of several large chains and there would seem to be little sign of this abating, according to recent reports highlighting the latest move, by Paris-based insurer Euler Hermes, which reduced the credit cover it provides to Iceland’s suppliers over the summer.

Euler Hermes is not the only...

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Is your business one of the many just hanging on?

The newly-published insolvency figures for Q3 (July to September) show a massive increase in the number of businesses entering Administrations.

A mid-October report by Begbies Traynor reported that the number of British businesses in significant financial distress has risen by 40% since the Brexit vote – with those in the property, construction, retail and the travel sectors the hardest hit and 489,000 companies in significant distress up by 22,000 on this time last year.

This was followed by KPMG’s recent analysis of London Gazette notices of companies entering into Administration and the picture became clearer with yesterday’s statistics from the Insolvency Service.

Administrations increased by 20% in the last quarter, compared to the previous quarter, to reach their highest level since Q1 2014. CVLs (Company Voluntary Liquidations) rose by only 2.3% compared to the previous quarter but were still at their highest quarterly level since Q1 2012.

The...

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Directors of companies in financial difficulties should be aware of their pay and perks!

Executive pay and perks have been creeping up the agenda with politicians and the public increasingly questioning the rewards given to top CEOs when companies fail.

But should this be done well before any potential failure and in particular when highly paid executives are seeking support for the restructuring and reorganisation initiatives that is necessary when their company is in financial difficulties?

Leadership involves setting an example and when the chips are down this means making demonstrable self-sacrifices.

This week, the Financial Times reported that Standard Chartered bank CEO Bill Winters may have his total pay cut and Namal Nawana will be leaving his CEO role at Smith & Nephew after less than a year after investors turned down his request to increase his $6m package to nearer $18m-$20m.

But it is not only executive pay that has come under fire, this is also true of pensions and other executive benefits.

In September the influential investor group IA (The...

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WeWork reminds us why we should not rely on charismatic leaders and the investment bank advisers who flatter them

This week the new management of WeWork the business space property rental company announced that it was preparing to axe 2,000, or 13%, of its workforce.

It has been calculated that up to 5,000, or a third, of the workforce will ultimately have to go.

This is the latest episode in an increasingly sorry saga, which last month saw its co-founder Adam Neumann step down as chief executive and relinquish control over the company. Mr Neumann also returned $5.9m worth of stock to the firm, which he had controversially received in exchange for his claim over the “We” trademark.

After announcing its intention to launch on the US stock market earlier in the year, the company, which has more than 500 locations in 29 countries, had to postpone its plans when its viability and corporate governance came under closer scrutiny.

The business, which was estimated to be worth some $47bn when the intended float was first unveiled has since had its credit rating downgraded by...

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‘Caveat Emptor’ Is peer to peer lending too risky for peers?

Peer to peer lending (P2P) enables individuals to obtain loans directly from other individuals, cutting out the financial institution as the middleman.

As such, the lack of trust in middlemen has seen the emergence of peer to peer lending platforms as an attractive proposition for retail investors in a climate of low interest rates because they can offer better rates thanks to the lower overheads associated with online businesses. The lower overheads are also related to not having to pay a middleman!

The platforms are generally a website or app that facilitates this alternate method of financing, where the first emerged in 2005 and was brought under FCA (Financial Conduct Authority) regulation in 2014.

However, the FCA has been criticised as being too “light touch” in its oversight following the collapse in May this year of UK property finance peer to peer firm Lendy with £160m in outstanding loans of which it has been calculated more than £90m are in...

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Sector update: have there been improvements in care home viability?

It hardly seems any time since I last assessed the viability of the UK’s care home sector, but in the light of recent developments with one of the UK’s largest providers it’s time for an update.

The last blog in December 2018 focused on the implications of the collapse of Southern Cross in 2011. This time it has been prompted by reports this month that Four Seasons, Britain’s second-largest private care home provider with around 320 sites and 22,000 staff, has confirmed it has failed to pay rent on time. It is being seen as a negotiating tactic in order to cut bills, but is this really the case?

Its latest troubles began in 2017 when its owner Terra Firma was unable to pay interest on its debts, most of which are owned by private equity firm H/2 Capital Partners who took control and have overseen the group since then.

The business, which has more than £700 million in debts, appointed Alvarez & Marsal as administrators...

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Can SMEs afford to wait any longer for a business rates review?

Retailers have been calling for months for a business rates review as the decimation of the UK’s High Street continues.

In early August more than 50 leading retailers wrote to the Chancellor urging him to change tax rules to boost the UK High Street and the business law firm RPC has reported that there has been a 65% increase in the number of businesses challenging their rates bill in the last quarter, with 4,000 challenges made in the first quarter of 2019, up from 2,430 challenges in Q4 2018.

RPC explains that the increase in challenges shows broadening dissatisfaction with business rates. Jeremy Drew, Co-Head of Retail at RPC, explains that the property tax is so complex that each new ratings review sees thousands of challenges lodged by businesses.

The retailers’ call was reinforced later in the month by the CBI (Confederation of British Industry), whose chief economist Rain Newton Smith said reform would be an enormous help to companies facing...

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Late payments situation getting worse for some SMEs

According to the ICAEW (Independent Chartered Accountants of England and Wales) late payments to SMEs are a bigger problem than they were a year ago.

Of the nine SME industries analysed, it said, six had reported that the problem of late payments was worsening.

The FSB (Federation of Small Businesses) too, has said that while there have been some improvements thanks to the efforts of the Small Business Commissioner Paul Uppal, late payments remain a major problem and research by Lloyds Bank Commercial released at the end of last month found that last year almost two thirds (62%) of SMEs that were being paid late “failed to chase up for fear of harming customer relationships” also cited time constraints as a significant factor.

The cost to small businesses has been considerable, according to research published by Hitachi Capital earlier this month. It estimates late payments have cost SMEs £51.5bn in the last year.

Its survey of 1000 businesses found...

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Proposal to strengthen sanctions for late payments culprits

Some 18 months since the appointment of Small Business Commissioner Paul Uppal to tackle the problem of late payments to SME suppliers by larger companies it seems that the situation has barely improved.

In fact, according to research published in June by Purbeck Insurance Services late payment problems have actually got worse for 27% of SMEs with some 30% reporting worsening cash flow problems.

In the first quarter of this year Mr Uppal’s department has overseen the removal or suspension of some 17 companies that had signed up to the Prompt Payment Code (PPC) but failed to meet its standards.

The five removed altogether included BHP Billiton, DHL and GKN Plc. Signatories to the PPC pledge, among other things, agree to pay 95% of all supplier invoices within 60 days.

In its most recent completed case in May 2019 the Small Business Commissioner (SBC) was approached by an SME over the failure by G4S to pay it an invoice for £31,880.49 despite having contracted to do so...

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Does the Government understand UK SMEs’ problems?

cash flow hmrc sme smes Apr 25, 2019

A recent fiery opinion piece in the London Evening Standard by Rohan Silva accused the Government of failing to help and therefore destroying UK SMEs.

While most of his ire was directed at the Chancellor, Philip Hammond, due to the 2017 increase in business rates, Silva also alleges: “Poorly implemented plans to make tax digital are costing companies thousands of pounds to become compliant. Big increases in the amount firms have to pay towards pension contributions are making it more expensive to employ people.”

According to the Federation of Small Business (FSB), the business rate increase means the average small company in London now has to find £33,000 a year simply to cover its rates bill. That’s on top of paying rent, NI contributions, corporation tax and running costs. Significant increases in the minimum wage haven’t helped many SMEs either although unlike the other burdens it has benefited employees.

It has become increasingly and...

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