Credit Management March 2020

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CMNEWS A round-up of news stories from the world of consumer and commercial credit. Written by – Sean Feast FCICM Defence businesses highlighted for failing to pay suppliers on time ELEVEN firms – including several big names within the military, aerospace and defence sectors – have been suspended from the Prompt Payment Code for failing to pay suppliers on time. BAE Systems (Operations) Limited, Leonardo MW Limited, and Smiths Detection are among those who have failed to honour their Code commitment to pay 95 percent of all supplier invoices within 60 days. The Code is administered by the Chartered Institute of Credit Management (CICM) on behalf of the Department for Business, Energy and Industrial Strategy (BEIS). Signatories pledge to uphold its best practice for payment standards to end the culture of late payment. Shell U.K. Limited and Bottomline Technologies Limited are also on the list, and both failed to engage with the CICM within the deadline set and submit action plans towards achieving compliance. Fourteen businesses have been re-instated to the Code since the last announcement in November 2019, which CICM Chief Executive Philip King FCICM says proves the effectiveness of the PPC in positively changing payment behaviours. “All 14 businesses have demonstrated a substantial improvement in payment performance that warrants re-instatement to the Code. Since the policy was changed in 2019 to begin naming those who had failed to honour their Code commitments, 55 businesses have been suspended and 26 re-instated.” Philip King, who chairs the Prompt Payment Code’s Compliance Board, and was recently appointed to the role of interim Small Business Commissioner, added: “We will continue to challenge signatories to the Code if the obligatory Payment Practice Reporting data suggests that their practices are not compliant. We are encouraged by those who have already submitted action plans to achieve future compliance, and we are working closely with those businesses to support a better payment culture.” Businesses suspended in January 2020 and no action plan received within the deadline: • Bottomline Technologies Limited • Shell U.K. Limited Businesses suspended in January 2020 and action plan received • BAE Systems (Military Air) Overseas Limited • BAE Systems (Operations) Limited • Cereform Limited • F M Conway Limited • Leonardo MW Limited • Macdonald Humfrey (Automation) Limited • Rhodar Limited • Sita Information Networking Computing UK Limited • Smiths Detection Small Business Minister Kelly Tolhurst said that with a growing number of businesses signing up to the Code, the Government is helping to change the culture of late payments: “It’s encouraging to see businesses reinstated after improving their practices, but we’ll continue to clamp down on late payment to support small businesses that are exploited by their larger partners.” Businesses re-instated to the Code since the last announcement in November 2019. • British Sugar Plc • Balfour Beatty Group Limited • Engie Services Limited • Ferrovial Agroman (UK) Limited • Fujitsu Services Limited • John Sisk & Son Limited • Kier Construction Limited • Kier Infrastructure and Overseas Limited • Galliford Try Plc • Laing O’Rourke • Persimmon Homes Limited • Smith & Nephew UK Limited • T.J. Smith & Nephew Limited • Vodafone Limited ‘‘We will continue to challenge signatories to the Code if the obligatory Payment Practice Reporting data suggests that their practices are not compliant.’’ Advancing the credit profession / www.cicm.com / March 2020 / PAGE 6
Profit margins tumble for food suppliers amidst currency volatility SMALL food and drink producers are being urged to enhance their risk mitigation processes in a sector dominated by everdecreasing margins. The Food Market Monitor by Atradius suggests that with more than 45 percent of food consumed in the UK imported, exchange rate volatility and its impact on the cost of commodities and food items remains a key issue facing many British food producers and processors who are reliant on imports. Being predominantly SME, both the meat and fruit and vegetable subsectors are particularly susceptible to currency fluctuation. Atradius warns that the added risk for many SMEs is often a lack of resource to effectively manage risk mitigation with forward contracts and currency hedging. While sterling has seen a recent rebound, any positive effect is likely to be limited as many businesses are bound by contracted prices agreed at lower sterling exchange rates. Looking at a wider picture, the Market Monitor highlights value added growth in the British food and beverages sector is forecast to have grown 2.5 percent in 2019, with a further 1.6 percent expansion in 2020. However, input costs for food businesses remain high with any opportunity to pass on price increases to retailers limited. To trade successfully, access to reliable information alongside forward planning are key to effective risk mitigation. Consolidation in the retail segment and the increasing market success of discounters, which puts traditional retailers and pricing under pressure, weigh heavily all along the supply chain. The Market Monitor goes on to warn that profit margins of British food businesses deteriorated in 2019, and the trend is expected to continue in 2020. Despite an increase in real incomes, UK consumers remain price sensitive. In 2019, food producers and processors have continued to pursue mergers and acquisitions in order to increase leverage in price negotiations with major retailers as well as to diversify the offering. Looking at payment behaviours, Atradius reports payments in the British food sector take between 45 to 60 days with some larger players pushing the supply chain on even longer terms, adding cash-flow challenges for many smaller food businesses. Due to an inability to absorb higher input costs and increased pressure on margins, the number of payment delays and level of insolvencies increased in 2019 and Atradius economists expect this negative trend to continue this year with an eight percent rise in failures. Darren Power, Regional Manager at Atradius’ Northern Hub, says that while exchange rate fluctuation has always been a risk in international trade, the last three years have seen more volatility in Sterling: “To trade successfully, access to reliable information alongside forward planning are key to effective risk mitigation. Therefore, all businesses must ensure they equip themselves with the insights, tools and resources to stand them in good stead and ensure they trade with protection from risk. Atradius supports customers to mitigate risk from the outset, developing robust trade relationships to maximise the opportunities for growth.” Charity claims half of debtors seeking help are destitute NEW research from StepChange Debt Charity, suggests that more than half (52 percent) of clients seeking its help meet the official definition of destitute, having gone without two or more basic essentials in the past month, and more than a quarter (27 percent) having recently visited a food bank. The charity says that its research, entitled Problem debt and the social security system, shows why it is vital that the Government should take urgent steps to reform the design flaws within the current system to stop a bad situation from becoming worse. Perhaps of equal concern, one in ten (10 percent) of those surveyed have used a loan shark as a result of a problem linked to social security, and almost half (43 percent) rely on some form of credit to buy essentials. Common causes of problems include delays and errors, unaffordable deductions from benefits to repay debt and design features of Universal Credit including the five-week wait and unpredictable swings in payments. National polling shows that 25 percent of those receiving Universal Credit are in problem debt, three times the rate among the general population (eight percent) and not far off double the rate of those on legacy benefits (14 percent). Head of Policy at StepChange, Peter Tutton argues that the social security system should support financial resilience and recovery from problem debt, but that the present system too often undermines rather than supports these aims: “We already knew that too many people are experiencing hardship and misery through problems with the Universal Credit system. What is new is the evidence of exactly how Universal Credit actively worsens debt problems, more so than the legacy benefits system. “Sending people into the arms of loan sharks, and making a debt situation worse at the very time when people most need help, cannot possibly be what social security is for. There is an urgent need to rethink the way that Universal Credit and legacy benefits can help people recover from financial difficulties instead of making those problems worse.” The charity highlights that debt collection practices through the social security system would not meet basic regulatory standards required of consumer credit and collections firms. There is an urgent need to rethink the way that Universal Credit and legacy benefits can help people recover from financial difficulties. Advancing the credit profession / www.cicm.com / March 2020 / PAGE 7
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