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LATE PAYMENT CRISIS WILL NOT BE SOLVED BY NEW PAYMENT PRACTICE LAWS, SAY FOUR IN FIVE SMES, AND COULD DEEPEN THANKS TO UNINTENDED CONSEQUENCES

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LATE PAYMENT CRISIS WILL NOT BE SOLVED BY NEW PAYMENT PRACTICE LAWS, SAY FOUR IN FIVE SMES, AND COULD DEEPEN THANKS TO UNINTENDED CONSEQUENCES
  • Disillusionment among British SMEs as an estimated 4m think new late payment reporting obligations will make no difference to their business
  • Changes come against backdrop of late payment crisis, as £266bn in SME turnover is locked up in late payments, with one in ten seeing worsening payment terms since Brexit vote
  • Late payment crisis could deepen thanks to new rules if large corporates respond by extending payment terms to create illusion that they paying on time
  • Almost our in five (78%) SME decision makers don’t know of new payment obligations, which would make it almost impossible for them to use the rules as leverage to resist pressure from corporates to extend payment terms
  • Cross-party election consensus on critical importance of late payment must turn into action for next government

The vast majority (74%) of SME do not think new guidelines, forcing large businesses to detail how they pay smaller suppliers, will have an impact on late payments, according to new findings from Crossflow Payments, the supply chain finance platform. 

Just 17% of the decision makers from the  5.4m British SMEs think the recent introduction of the ‘Duty to Report’ measures, forcing large businesses to report publically on how they pay small businesses, including the average time they take to pay suppliers, will have a positive impact upon their business.

The harsh assessment comes as SMEs face an endemic working capital crunch, with an estimated £266bn of turnover locked up in late payments,3 as almost a quarter (23%) admit they usually receive payment for invoices late. One in ten (10%) SMEs say they have experienced an increase in late payments by their customers since the EU Referendum in June 2016.

Tony Duggan, Crossflow Payments CEO, commented on the research: 

“The vast majority of SMEs we polled think the new payment reporting rules will do nothing to fix the late payment crisis. They are right. In fact, the new rules could make a bad situation worse. An unintended consequence of the rules is that large corporates are likely to respond by negotiating longer payment terms with suppliers to shift the goalposts and create the illusion that they are paying on time. Add to the mix difficult trading conditions thanks to Brexit and we could see Britain’s late payment crisis deepen significantly.”

Impact of new payment reporting rules

The new measures implemented by the outgoing government in April are designed to drive up standards in payment practices by improving transparency in an attempt to tackle the chronic issue of late payments made by larger businesses to their suppliers. Large businesses will be required to report on their payment practices twice a year, including whether they pay their suppliers on time. Failure to report carries a risk of criminal proceedings.

Crossflow Payments points out that large corporates are unlikely to reduce their own working capital by paying suppliers faster, particularly in the face of difficult trading conditions thanks to Brexit uncertainty. Therefore, they may respond to the changes by trying to implement longer payment terms so that they are not seen to be paying late.

 SMEs unaware of new measures 

Crossflow payments believes that most SMEs are poorly placed to push back against corporates that seek to extend their payment terms. One of the reasons is that almost four in five (78%) SMEs were unaware of the new reporting obligations, a new duty forcing larger business to publish details of their supplier payment terms and practices to drive compliance with their payment terms to suppliers. The lack of knowledge means that SMEs won’t be able to use the leverage of the payment obligations in their negotiations with their large corporate customers. Crossflow Payments points out that many SMEs are dependent on contracts from large customers, creating an unequal playing field when it comes to negotiating payment terms.

Tony Duggan continues:

“The future government must build on the initial momentum of the guidelines and actively support new ways in which the late payment problem can be solved, such as through alternative finance platforms. 

“This election campaign has seen broad support for SMEs on the late payment issue and it is vital that talk turns to action for the next Government. Such action should include ensuring The Small Business Commissioner is appointed on time and given the necessary support to begin monitoring and publishing payment terms. Government should also consider the potential role innovative solutions, such as supply chain finance, can play in helping to square the circle of working capital needs for both SMEs and large businesses. 

“As the lifeblood of the UK economy, we cannot afford to ignore the late payment problem facing SMEs any longer.”

Finance

Sunak warns of bill to be paid to tackle Britain’s ‘exposed’ finances – FT

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Sunak warns of bill to be paid to tackle Britain's 'exposed' finances - FT 1

(Reuters) – British finance minister Rishi Sunak will use the budget next week to level with the public over the “enormous strains” in the country’s finances, warning that a bill will have to be paid after further coronavirus support, according to an interview with the Financial Times.

Sunak told the newspaper there was an immediate need to spend more to protect jobs as the UK emerged from COVID-19, but warned that Britain’s finances were now “exposed.”

UK exposure to a rise of one percentage point across all interest rates was 25 billion pounds ($34.83 billion) a year to the government’s cost of servicing its debt, Sunak told FT.

“That (is) why I talk about leveling with people about the public finances (challenges) and our plans to address them,” he said.

The government has already spent more than 280 billion pounds in coronavirus relief and tax cuts this year, and his March 3 budget will likely include a new round of spending to prop up the economy during what he hopes will be the last phase of lockdown.

He is also expected to announce a new mortgage scheme targeted at people with small deposits, the UK’s Treasury announced late on Friday.

Additionally, the government will also announce a new 100 million pound task force to crack-down on COVID-19 fraudsters exploiting government support schemes, it said.

(Reporting by Bhargav Acharya in Bengaluru; Editing by Leslie Adler and Cynthia Osterman)

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G20 promises no let-up in stimulus, sees tax deal by summer

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G20 promises no let-up in stimulus, sees tax deal by summer 2

By Gavin Jones and Jan Strupczewski

ROME/BRUSSELS (Reuters) – The world’s financial leaders agreed on Friday to maintain expansionary policies to help economies survive the effects of COVID-19, and committed to a more multilateral approach to the twin coronavirus and economic crises.

The Italian presidency of the G20 group of the world’s top economies said the gathering of finance chiefs had pledged to work more closely to accelerate a still fragile and uneven recovery.

“We agreed that any premature withdrawal of fiscal and monetary support should be avoided,” Daniele Franco, Italy’s finance minister, told a news conference after the videolinked meeting held by the G20 finance ministers and central bankers.

The United States is readying $1.9 trillion in fiscal stimulus and the European Union has already put together more than 3 trillion euros ($3.63 trillion) to keep its economies through lockdowns.

But despite the large sums, problems with the global rollout of vaccines and the emergence of new coronavirus variants mean the future path of the recovery remains uncertain.

The G20 is “committed to scaling up international coordination to tackle current global challenges by adopting a stronger multilateral approach and focusing on a set of core priorities,” the Italian presidency said in a statement.

The meeting was the first since Joe Biden – who pledged to rebuild U.S. cooperation in international bodies – U.S. president, and significant progress appeared to have been made on the thorny issue of taxation of multinational companies, particularly web giants like Google, Amazon and Facebook.

U.S. Treasury Secretary Janet Yellen told the G20 Washington had dropped the Trump administration’s proposal to let some companies opt out of new global digital tax rules, raising hopes for an agreement by summer.

“GIANT STEP FORWARD”

The move was hailed as a major breakthrough by Germany’s Finance Minister Olaf Scholz and his French counterpart Bruno Le Maire.

Scholz said Yellen told the G20 officials that Washington also planned to reform U.S. minimum tax regulations in line with an OECD proposal for a global effective minimum tax.

“This is a giant step forward,” Scholz said.

Italy’s Franco said the new U.S. stance should pave the way to an overarching deal on taxation of multinationals at a G20 meeting of finance chiefs in Venice in July.

The G20 also discussed how to help the world’s poorest countries, whose economies are being disproportionately hit by the crisis.

On this front there was broad support for boosting the capital of the International Monetary Fund to help it provide more loans, but no concrete numbers were proposed.

To give itself more firepower, the Fund proposed last year to increase its war chest by $500 billion in the IMF’s own currency called the Special Drawing Rights (SDR), but the idea was blocked by Trump.

“There was no discussion on specific amounts of SDRs,” Franco said, adding that the issue would be looked at again on the basis of a proposal prepared by the IMF for April.

While the IMF sees the U.S. economy returning to pre-crisis levels at the end of this year, it may take Europe until the middle of 2022 to reach that point.

The recovery is fragile elsewhere too. Factory activity in China grew at the slowest pace in five months in January, and in Japan fourth quarter growth slowed from the previous quarter.

Some countries had expressed hopes the G20 may extend a suspension of debt servicing costs for the poorest countries beyond June, but no decision was taken.

The issue will be discussed at the next meeting, Franco said.

(Additional reporting by Andrea Shalal in Washington Michael Nienaber in Berlin and Crispian Balmer in Rome; editing by John Stonestreet)

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Bank of England’s Haldane says inflation “tiger” is prowling

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Bank of England's Haldane says inflation "tiger" is prowling 3

By Andy Bruce and David Milliken

LONDON (Reuters) – Bank of England Chief Economist Andy Haldane warned on Friday that an inflationary “tiger” had woken up and could prove difficult to tame as the economy recovers from the COVID-19 pandemic, potentially requiring the BoE to take action.

In a clear break from other members of the Monetary Policy Committee (MPC) who are more relaxed about the outlook for consumer prices, Haldane called inflation a “tiger (that) has been stirred by the extraordinary events and policy actions of the past 12 months”.

“People are right to caution about the risks of central banks acting too conservatively by tightening policy prematurely,” Haldane said in a speech published online. “But, for me, the greater risk at present is of central bank complacency allowing the inflationary (big) cat out of the bag.”

Haldane’s comments prompted British government bond prices to fall to their lowest level in almost a year and sterling to rise as he warned that investors may not be adequately positioned for the risk of higher inflation or BoE rates.

“There is a tangible risk inflation proves more difficult to tame, requiring monetary policymakers to act more assertively than is currently priced into financial markets,” Haldane said.

He pointed to the BoE’s latest estimate of slack in Britain’s economy, which was much smaller and likely to be less persistent than after the 2008 financial crisis, leaving less room for the economy to grow before generating price pressures.

Haldane also cited a glut of savings built by businesses and households during the pandemic that could be unleashed in the form of higher spending, as well as the government’s extensive fiscal response to the pandemic and other factors.

Disinflationary forces could return if risks from COVID-19 or other sources proved more persistent than expected, he said.

But in Haldane’s judgement, inflation risked overshooting the BoE’s 2% target for a sustained period – in contrast to its official forecasts published early this month that showed only a very small overshoot in 2022 and early 2023.

Haldane’s comments put him at the most hawkish end among the nine members of the MPC.

Deputy Governor Dave Ramsden on Friday said risks to UK inflation were broadly balanced.

“I see inflation expectations – whatever measure you look at – well anchored,” Ramsden said following a speech given online, echoing comments from fellow deputy governor Ben Broadbent on Wednesday.

(Editing by Larry King and John Stonestreet)

 

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