eNews November 19
In the News
November 19, 2020
|I. UK Launches Consultation on Late Payment Protection Measures for Small Businesses|
|II. 7 Strategies for Foreign Debt Collection|
UK Launches Consultation on Late Payment Protection Measures for Small Businesses
—Ian Stevens, CMS Cameron McKenna Nabarro Olswang LLP
The Department for Business, Energy & Industrial Strategy (“BEIS”) has launched a Consultation aimed at giving the Small Business Commissioner (“SBC”) more power to help ensure small businesses are paid on time. The Consultation will close on Dec. 24, with any accepted proposals being implemented via primary legislation.
The Consultation proposes to expand the SBC’s powers of investigation and enforcement, including:
- The power to order companies to pay the sums due when a complaint against them for late payment has been investigated and upheld
- The power to oblige companies to share information during an investigation by the SBC
- The power to launch investigations into companies which are suspected of bad payment practice, instead of requiring for an initial complaint from a small business
- Expanding the scope for complaints, allowing the SBC to investigate complaints about other payment matters in connection with the supply of goods and services
- The power to review and report on wider business practices outside of payment matters at the instruction of the BEIS Secretary of State
- The power to claim investigation costs from the investigated company where there are adverse findings against them
The new proposals are one in a number of steps taken by the Government to crackdown on late payments, notably including the introduction of the Reporting on Payment Practices and Performance Regulations 2017, which impose a duty on medium and large sized U.K. firms to report on their payment practices, policies and performance for financial years beginning on or after April 6, 2017 (see the September 2019 BEIS guidance here). We have already started to see the first big companies being “named and shamed” as a result of these reforms. The Consultation follows up on the Government’s response to the 2018 ‘Creating a Responsible Payment Culture’ Call for Evidence, in which it announced that it would bring forward a broad set of measures to set clear standards of good practice, increase responsibility at a Board level and allow SMEs to utilize payment technology.
In these difficult times the proposed new powers, if implemented, represent further welcome support for the start-up community and smaller firms. Small Business Minister Paul Scully said chasing late payments remained a “terrible” burden on SMEs. Despite the government’s previous efforts, according to the Consultation, £23.4 billion is presently owed to small business in late fees across the U.K., causing crucial cashflow problems to SMEs and jeopardizing their ability to trade. The deficit has been worsened during the COVID-19 pandemic, with larger businesses and LLPs delaying payments in efforts to save money.
Ian Stevens is a partner in the Technology and Sourcing team at CMS Cameron McKenna Nabarro Olswang LLP. He also leads the firm’s Fintech group and is one of the leaders of the firm’s technology, media and communications (TMC) sector group. The article was also co-authored by James Highfield.
7 Strategies for Foreign Debt Collection
—Gordon Cessford, Atradius Trade Credit Insurance
The concept of debt collection is straightforward: A customer owes you money, and you try to get payment. But for businesses operating internationally, debt collection can be incredibly complex. In addition to language and time zone differences, each country has its own legal environment and requirements for taking action against a debtor.
Although businesses must know the specifics of debt collection in the foreign markets in which they operate, some of the key issues to be aware of include:
A local presence can make or break debt collection success. Most legal actions surrounding debt collection need to be performed locally. Without a local presence or local intermediary, debt collection efforts are less likely to be successful.
The older the debt, the harder it is to collect. The statute of limitations on debt collection varies from country to country (some countries have no statute of limitations), so holding on to invoices for too long may mean you forfeit your right to recover them. Old debt is bad news for other reasons, as well. If key people who approved a transaction have departed the company, you may have difficulty finding someone willing to approve an invoice for a product that they aren’t familiar with receiving or using. In other words, it is essential that companies be prompt in their follow-up action and collections activity, whether they’re handling it themselves or outsourcing to a third party.
Amicable collection is always the best solution. Although not always possible, amicable collection is preferable to taking legal action against a debtor. To achieve amicable collection, keep the lines of communication open and start by trying to understand why the customer didn’t pay. Then, you can proactively work to resolve the issue.
For example, if your customer is unable to pay because of a short-term cash flow issue and has a positive payment history, you may want to make a deal where you collect 50% of their outstanding payment immediately and the other half in a month or two. This solution avoids costly litigation and the need to retain lawyers. It also gives you the best chance of maintaining the business relationship, although you may want to consider requiring stricter terms moving forward.
You need to have a strategy to get funds out of the country. Financial regulations around the world differ—it’s easier to get funds out of some countries than others. For instance, some countries have steep tax penalties around collections and repayment (Brazil and Argentina, just to name two). This is yet another reason why it’s imperative to understand the legal framework any time you enter a foreign market or forge a relationship with a new customer in a new country.
Meticulous documentation is a smart proactive step. To maximize the chances of success should a legal proceeding become necessary, companies need to make sure all documentation is watertight and up-to-date, including delivery notes, invoices and phone records. If you’ve spoken to a debtor who promises to pay on a particular date, make note of that conversation. By keeping meticulous records from the beginning, you’ll have the best chances of success should you land in court.
Be aware of the fine print when it comes to legal procedures. Legal procedures vary significantly around the world—not only from country to country but sometimes from jurisdiction to jurisdiction. To make a valid legal claim to prove that goods were delivered and a legal debt is outstanding, some countries (Mexico, for example) require original documents, not scanned copies.
This type of rule can easily trip up companies that utilize paperless procedures. It also gives the debtor room to play games—the court demands originals, then your customer might say they only have scanned copies. If you don’t have the originals, either, you can’t prove the debt is valid and thus are out of options for recovering the debt.
Expect the best, but prepare for the worst. Like most things in business, it’s prudent to expect the best but prepare for the worst when it comes to debt collection. A common mistake companies make when conducting business internationally is failing to have a debt collection escalation plan in place at the start of a new business relationship or when entering a new market. Sending invoice after invoice and demand after demand won’t cut it. You need to know what steps you will take to attempt an amicable settlement and then what comes next if that doesn’t pan out.
It’s more important than ever for companies to be knowledgeable about foreign debt collection and have proactive strategies in place. The past year has brought an entirely new economic environment, with rising bankruptcy filings due to COVID-19. Time is not your friend—if you can’t reach a debtor within 90 days past due, it may be time to consider personal assistance.
Partnering with a third party for debt collection can maximize your chances of success in recovering debt. Plus, by engaging with a third party, instead of chasing down debts, companies can focus on activities that add value, such as expanding to new markets or developing new products.
Atradius Collections recently released its annual International Debt Collection Handbook, a free resource for credit managers. The handbook provides insights into debt collection, legal proceedings and insolvency procedures in more than 50 countries.
Gordon Cessford is the president and regional director of North America for Atradius Trade Credit Insurance, Inc.
What do I have to do? When do I have to do it?
The STS Lien Navigator has the answers and will guide you through the entire process!
Credit professionals can rely on the Navigator to determine when and how action needs to be taken to protect lien rights across the 50 states, DC and Canada. The real-time Navigator ensures that you’ll always have the current information.
Specific questions are also answered for subscribers through the Navigator Answer Line. The Navigator is a web-based service, accessed through our website and available from any computer with internet access.
Navigating the Way—On Time, Every Time
For more information, call Chris Ring at 410-302-0767 or visit www.nacmsts.com.
Winter Slowdown-Pandemic Combo a New Hurdle for Construction
—Andrew Michaels, NACM Editorial Associate
Winter is coming and that means the inevitable slowdown in construction is not far behind. Depending upon specialties, some construction companies fare better than others during the winter months, but slight declines in overall business are common during the industry’s offseason. What remains uncharted territory for many in the sector is the combination of a winter slowdown and COVID-19, the latter spelling troubling times ahead as the case count rises across the country.
According to ConstructConnect, a network of contractors and construction projects, the changes in seasonal temperatures “is the biggest and most important factor in construction.” Although the spring and summer months carry its own set of issues, winter impacts almost every aspect of a project, whether it’s the timeline until completion or material shortages and/or delays.
“The end result is that on average, winter building projects will take more time to complete,” T.F. Harper, of T.F. Harper and Associates LP, wrote in an article. “A project that could be completed in 16 weeks in the warmer seasons would likely take 20 weeks in the winter months.”
And then, there’s the COVID-19 pandemic. When the virus reached the U.S. last March, many construction credit professionals said they experienced decreased business as projects were shut down and delayed. More than eight months later, business credit professionals remain uncertain of what lies ahead and how it will affect future business. At Mutual Materials Co. in Washington state, credit manager Paulyne VanderSloot, CCE, CICP, said “building is going on as usual” at the hardscape and masonry supply company. Despite hearing about pandemic-related slowdowns in other industries, VanderSloot said she has yet seen similar signs at Mutual Materials.
“As far as COVID-19, our sales have gone up from last year,” said VanderSloot, who noted operations could change given Washington state Gov. Jay Inslee’s recent decision to close down the state once again in early November. “We still have branches and customers in other states, but our CEO is always on top of things to make sure employees and customers are safe no matter where they are located.”
Winter will likely add to ongoing struggles because it is often a slow period, the credit manager added. Less outdoor home projects and less orders from big box stores are typical this time of year.
Credit professional Roberta Ortiz-Montoya said Wagner Equipment Co. in New Mexico, is also staying afloat amid the pandemic, despite some projects being put on hold due to restrictions on public land use. The company specializes in Caterpillar equipment, sales, parts and service and also experiences slow business during the winter months.
“The combination of the normal winter slowdown and COVID-19 does create a new hurdle,” Ortiz-Montoya said. In addition to operating in cold weather, COVID-19 makes it “difficult to do business over the phone when our industry depends a lot on face-to-face contact.” At this time, she said the company is moving forward with current projects and will start up delayed projects once more areas are open for business.
Breathing: It’s not something everyone thinks about doing throughout the course of the day. In fact, it’s the opposite—holding our breath requires the need to concentrate and make the conscious decision to breathe in and dive into the pool. The same can be said for project management. We manage projects daily and in our personal lives, but when it comes to the professional world, we have to stop, think and plan, doing the opposite of our daily routine.
A recent FCIB webinar, “Project Management for Credit Professionals,” in partnership with Fiserv, states projects don’t always present themselves as projects. Think of a birthday party or planning a vacation, and interwoven in the webinar was the analogy of remodeling a bathroom. According to the Project Management Institute, projects are temporary and unique, while the Association for Project Management states projects have a finite timespan. This is exactly what credit professionals should know.
There is a beginning, middle and end, with a scope and light at the end of the tunnel noted, presenter Amber Roy of Fiserv. While projects are temporary, there might be certain aspects that are taken back to respective departments with recurring responsibilities on top of a credit professional’s normal day job. “If the project is not managed, at the end of the day, it may end up managing you,” he said.
There are five phases to project management, and it’s important to break down the work and not jump directly into the project.
Initiation is typically short. This is the phase where all the basic elements of the project are defined—a high-level scope. Some questions to ponder are: why are we doing this project; is it the right project; what are the risks involved with this project? Another important aspect to consider is build versus buy. Can a husband and wife actually remodel the bathroom themselves or is outside assistance from plumbers and the like needed?
Planning is likely the most important phase, but these phases tend to blend together at points. Roy added that planning is often the most overlooked phase in the process. This is when work is broken down and tasks are assigned owners. Also determined is the duration (how long) and the timing (when) of tasks. Scheduling is vital at this stage as are dependencies and sequencing. Painting cannot be completed before drywall is placed, and homeowners don’t want a plumber showing up for work when the pipes haven’t been delivered. “You want to minimize the amount of time when no work is being done on the project,” Roy said. This will help with delays on the project.
Execution is typically the longest phase in the project. “The better you plan, the better the execution will go,” noted the webinar. It’s important to have people lined up to do tasks, and they must know when they will do them. Risks will also need to be identified and managed. These could be risks that were planned for, or they could be ones that were unforeseen. However, these risks and problems will need to be resolved as the execution of the project continues. For example, the couple remodeling their bathroom finds corroded pipes behind the toilet. They have to fix the issue before pressing on to the next portion of the project.
Monitoring is when project managers will track progress against the plan. Shareholder expectations will be managed as well as the effort and the cost of the project. Has the project followed the four main key performance indicators: scope, cost, timeline and quality? This is the point in time when the project is re-evaluated against its original ROI. Should the project continue or is it time to abandon ship and cut losses? Is the benefit still going to be there at the end of the project? These are all questions Roy said project managers and credit professionals must consider in this phase.
Closure is fairly straight forward. The project has been completed, but a review of what potentially did not get accomplished must be done. This is also when new users are trained to keep the project afloat once implemented, but there has to be an exit strategy to turn the project into an operational function. This is the time to recognize key team members, disband the team and release contractors.
|Multigenerational Workplace Amid COVID
Speaker: Caitlin Crommett, DreamCatchers, Scottsdale, AZ
|2021 Factoring & Receivables Finance Predictions
Speaker: Peter Mulroy, FCI (Factors Chain International), Amsterdam, Netherlands
|UCCs: Be Secured and Get Paid
Speaker: Chris Ring, NACM’s Secured Transaction Services
|Author Chat: The Culture
Author & Speaker: James C. Hunter