In the News

June 6, 2019

 

Adapting to Countries’ Local Payment Methods May Benefit Domestic Business

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US Threatens Tariffs on Mexican Imports, Stirring Agitation in Businesses

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SMEs Struggling With Late Payments

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Failure to Provide Proper Itemization Under New York Lien Law Fatal to Maintaining a Mechanic's Lien

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Adapting to Countries’ Local Payment Methods May Benefit Domestic Business

Any seasoned credit professional knows that a credit department for a domestic company has its fair share of differences from its counterparts operating abroad. There are certain factors that must be taken into account internationally, ranging from a country’s culture to its business-to-business (B2B) credit standards. Among these differing practices are payment methods that continue to evolve with the changes in technology.

Just as the U.S. has its own local payment methods (LPMs) so do other countries, which is why businesses such as financial technology company HighRadius and U.K. e-payments specialist PPRO are attempting to make international transactions easier for both accounts receivable and accounts payable. According to a press release in May, HighRadius and PPRO announced a partnership of “discovery and support of local payments in key markets” to create more options for companies in those areas. The system will launch first in the European Union (EU) and allow HighRadius customers to accept payment through country-specific online bank platforms, including Entercash (Europe), Giropay (Germany), iDEAL (Netherlands), P24 (Poland), Sofort (Germany, Austria, Switzerland and Belgium), Trustly (Sweden), SEPA (EU) and Bancontact (Belgium).

“As a part of our global expansion and offering of our Integrated receivables platform, we are embracing newer payment methods as they are becoming more relevant to the B2B world,” Sayid Shabeer, chief product officer of HighRadius, said in the release. “We believe with PPRO we will be able to provide a variety of Local Payment Methods to our clients and keep bringing new efficiencies to transactions.”

As an internationally operated company, Credit Manager Frank Fallucca, CCE, said ArcelorMittal USA LLC already accommodates LPMs but agrees this latest endeavor will benefit domestic companies conducting international business. At ArcelorMittal, Fallucca said payments are usually all in U.S. dollars via ACH or wire transfers when working with customers outside of the country. However, if the company chooses to accept foreign currency, a process is in place to ensure the transaction goes smoothly.

“We have a treasury group that automatically takes [foreign currency] into account and manipulates the currency differences,” Fallucca said. “Given that we’re a large international company—with operations in Europe, South America, Mexico, U.S., Canada and Asia—we have some advantages. We have the resources, the manpower and the expertise internally to make sure the funds are captured quickly and moved globally for investments.”

Although accepting LPMs is a step in the right direction, Fallucca added that credit insurance or other security instruments, such as standby letters of credit, documentary letters of credit or security deposits, are used to address international risk concerns. ArcelorMittal will not take a lot of risk internationally unless its credit insurer is familiar with the customer or there’s another security measure in place.

“We want funds to be as liquid and as transferable as possible,” Fallucca said.

—Andrew Michaels, editorial associate

US Threatens Tariffs on Mexican Imports, Stirring Agitation in Businesses

Adding another variable into the trade war mix, President Donald Trump proposed to implement a 5% blanket tariff on Mexican imports into the U.S. beginning June 10. Trump said the tariffs would be set to increase throughout the course of several months, reaching 25% by October. This announcement comes as a response to Central American immigrants making their way through Mexico to the U.S. to seek asylum, which Trump vehemently opposes.

According to a recent article by Reuters, this announcement has “spooked global markets worried about a new front in the U.S. trade war.” As credit managers prepare for the possibility of more tariffs, they likely will have to grapple with customers over-buying products from Mexico—something many creditors already experience with Chinese goods—and their respective businesses will have to make the decision to either absorb the extra costs or pass them along to customers. Mexico relies heavily on exporting to the U.S., according to Reuters, and several American companies rely on those imported goods as well.

“This has become a tiresome and dangerous pattern,” said NACM Economist Chris Kuehl, Ph.D. “[Trump’s] anger at Mexico over immigration led him to try intimidating the Mexican leadership with the threat of draconian tariffs. Unfortunately, this tactic also slams millions of Americans with higher prices, lost business and lost jobs. It is not even clear what is actually expected of Mexico.”

Trump made the announcement June 3, and he faces bipartisan opposition to this proposal, according to a recent article by CNBC. His main opposition comes from Democratic Sen. Gary Peters of Michigan, whose main concerns revolve around his constituents in Detroit struggling with automobile work—which currently receives imported parts from Mexico.

Given the pushback from both Democrats and Republicans on this issue, Kuehl said the implementation of these tariffs are not likely. Drawing on evidence from trade wars with Canada, Europe, Japan and others, Kuehl said the tariffs will likely be delayed until the “last minute.”

Regardless of whether the tariffs pass, creditors should be cognizant of how their customers will behave given the threat of more tariffs. The consequences of Trump’s actions may be immediate, and creditors’ companies will have to think on how the costs will be dispersed, absorbed or both.

“The [GOP] is well aware that these tariffs will hurt their constituents, and it may not be worth the pain for these voters,” Kuehl said. “Given the potential damage from a Mexican trade war, the sense is that something will emerge at the last minute that stalls the imposition of the tariffs, but that is not a certainty given the position that Trump has taken thus far.”

—Christie Citranglo, editorial associate

SMEs Struggling With Late Payments

Small- and medium-sized enterprises (SMEs) across the globe are feeling the economic squeeze from late payments. There are many movements, small and large, around the world to remedy this issue. Australia, Canada, South Africa and the U.K. are among those fighting for faster payments to SMEs and suppliers, especially after the fall of Carillion, the resignation of U.K. Prime Minister Theresa May and the forthcoming U.K. exit from the European Union.

Members of Parliament are also calling for businesses to step up their game and join the Prompt Payment Code (PPC). Rachel Reeves, MP, chair of the Business, Energy and Industrial Strategy Committee, reached out to grocery retailers to find out why six of the 12 under the Groceries Supply Code of Practice have not signed the PPC.

The U.K.’s Federation of Small Businesses (FSB) has called on May to use her final days as prime minister to “push through the late payments reforms package.” Four in five small businesses are impacted by late payments, and “[t]hese practices carried out by big businesses toward their smaller suppliers is rife and continues to put smaller firms at risk. [Approximately] 50,000 small firms a year are forced to close their doors because of it,” states a release from FSB.

“We cannot afford to have these crucial reforms lost at the last fence, as attention turns to the leadership contest, a new administration and the upcoming Brexit deadline,” said Mike Cherry, FSB national chairman, in the release.

South Africa is also searching for prompt payments for SMEs. “Small businesses need predictable cash flow to gain traction, pay their employees, market their products and services, and invest in their businesses,” said Bernard Swanepoel, Small Business Institute executive director, in a release. “One of the surest ways to disrupt it is to delay paying them for their services.”

Payment delays in South Africa are increasing, mostly due to cash flow issues, according to FCIB’s March 2018 International Credit & Collections Survey. Payment delays more than doubled from July 2016 to March 2018, according to respondents. Several creditors advised to accept prepayments when selling into South Africa.

The uncertainty in the U.K. is also contributing to payment delays, increasing nearly threefold. One in four FCIB survey respondents in March 2019 reported an increase in payment delays compared to 9% in the previous U.K. survey from April 2018. While it is easy to sell into the U.K., said one respondent, Brexit is causing a slowdown. “Be aware of Brexit challenges that may arise in the near future,” said another.

“It is crunch time—small businesses want these reforms in place before the prime minister leaves Number 10. Taking real action to tackle poor payment practices can be the legacy that the prime minister and her government leave office with,” concluded Cherry.

—Michael Miller, managing editor

Failure to Provide Proper Itemization Under New York Lien Law Fatal to Maintaining a Mechanic's Lien

The New York Lien Law provides broad rights to contractors, subcontractors and materialmen who improve real property. However, the right to file a mechanic's lien is not without obligation on the lienor who must, within five days of receipt of a demand under Section 38 of the Lien Law, provide a verified, itemized statement detailing the value of the labor and materials that comprise its claimed lien amount.

A property owner faced with a lienor who refuses or fails to adequately itemize its mechanic's lien may bring a petition before the court to seek a proper itemization. If the lienor fails to comply after the court orders it to do so, the court may vacate and cancel the lien.

In Red Hook 160 LLC v. 2M Mechanical, LLC, Index No. 501742/2019 (Sup. Ct. Kings Co. April 16, 2019), Red Hook 160 LLC ("Red Hook") made a demand pursuant to Section 38 of the Lien Law that respondent 2M Mechanical, LLC ("2M") provide a verified itemized statement of its $1,200,000 mechanic's lien. 2M responded by letter refusing to itemize its lien, prompting Red Hook to file a petition seeking a court order requiring 2M to itemize. At the initial hearing on the petition, the Court issued an Order directing 2M to either itemize its lien or oppose the petition. 2M thereafter provided a one-page itemization of its lien which simply listed the pay applications which totaled the lien amount. Red Hook's reply argued that 2M failed to properly itemize and requested that the Court discharge the lien. The Court agreed with Red Hook finding that the single-page itemization was insufficient, and that 2M had received ample opportunity to itemize its lien and failed to do so. Thus, the Court issued an Order vacating and cancelling 2M's lien.

However, in an interesting turn of events, just two days after the Court discharged its lien, 2M filed an identical second lien against Red Hook's property. Red Hook promptly filed a motion to vacate the second lien on the basis that the second lien was filed in contravention of the Court's Order and that to permit the second lien would render Section 38 of the Lien Law meaningless. 2M took the position that the Court Order discharging its first lien was not "with prejudice" and therefore, there was no bar to re-filing a successive lien since 2M was still within the eight-month statutory limitations period for filing a lien. The Court, again, sided with Red Hook holding that Section 38 requires discharge of the lien with prejudice so as to give the statute's language its intended effect. Thus, the Court vacated and cancelled 2M's second lien with prejudice.

Reprinted with permission.

Michael R. Glanzman, Esq. and Daniel Q. Horner, Esq., are associates in the Construction and Litigation Practice of Smith, Gambrell & Russell, LLP.

James Lotito, Esq., is the head of the New York Litigation Group and a partner in the Construction Practice of Smith, Gambrell & Russell, LLP.