ROCKY TIMES ARE AHEAD FOR UK PLC
PETER COOPER
LONDON HEAD, BAKER TILLY RESTRUCTURING & RECOVERY LLP
NEWS of the UK’s economic contraction for a sixth consecutive quarter startled economists and captains of industry. We believe that administrations could rise once again in the immediate future.
One reason is that the number of companies suffering late payment from customers has more than doubled in the last six months, according to data from the Baker Tilly Finance Director Survey, published this week.
It showed that 41 per cent of finance directors have reported a problem with late payment, up from 19 per cent in March. In addition, 54 per cent of all respondents expect no improvement in trading conditions over the next 12 months, while 28 per cent expect them to worsen in 2010.
For businesses, the money that the Bank of England has put into the economy has been a mixed blessing. The pound is now much weaker against the euro, but few have been in a position to take advantage.
Some help has been available since January in the form of the Enterprise Finance Guarantee (EFG). In place until at least 31 March 2010, it continues to provide support to banks seeking to underpin their clients’ additional funding or restructured debt. While there is every chance that EFGs will be extended, the lack of certainty could make long-term planning increasingly difficult.
What is clear, however, is that businesses need banks to be more flexible in their approach to lending. In instances where the traditional restructuring of debt repayment time frames is not appropriate for their customers, banks are frequently finding themselves in an equity play position.
New money is often required to provide requisite working capital breathing space to try to turn the business around. This could be due to a business having its underlying security downgraded, or because a capital injection is required to facilitate an organisation’s survival and growth. However, if a bank is taking an equity stance, it will require a commensurate upside to match the perceived level of risk.
In the meantime, the government has tried to assist business as much as possible. Over the last 18 months, HMRC has supported companies who are struggling with the recession and fall into arrears with PAYE/NI and Vat. HMRC will still agree a deferred payment, but it is becoming tougher on those businesses that have not kept to their original payment plans. HMRC also now appears unwilling to accept delayed payment stretching past 12 months.
We are faced with a cocktail of economic and political elements which, combined, give rise to a weak corporate outlook over coming months.
Public spending cuts, an imminent general election, the need for the government to recoup tax, high levels of unemployment and unpredictable funding mean that the next few months are likely to be a rollercoaster ride for UK businesses. We have all bought a ticket, but not all will like the journey – nor survive it. [email protected]