Opinion

The Great Debate

from Entrepreneurial:

Why America’s small businesses are becoming like banks

By Terra Terwilliger
The opinions expressed are the author's own.

Over two years after the start of the Great Credit Crisis, banks are still not lending money. But big businesses know exactly where to go for a quick, interest-free loan … the little guy. Even as corporate profits recover, big companies continue to squeeze their small vendors, stretching out payment terms and writing late checks. Unfortunately, this blatant exploitation is damaging the small business economic engine that drives half of US GDP.

A friend who owns a small consulting company recently received notice from a Fortune 500 client that henceforth their payment terms would be extended from 90 to 120 days. No discussion, no recourse, just a fancy legalese version of “we’re going to start paying you later because it’s better for us, so get used to it.”

That’s as if your employer casually one day sent you a letter saying that they were going to start paying you 30 days late. Unfortunately, you wouldn’t be able to tell your landlord, the gas company and the supermarket the same thing. Your bills still have to be paid on time.

My friend is not alone. Last August, The Wall Street Journal published an article titled “Big Firms are Quick to Collect, Slow to Pay,” which revealed how companies with more than $5b in annual sales were systematically slowing payments to suppliers, while speeding up their own collections. The analysis showed that companies with revenues over $5 billion took an average of 55.8 days to pay suppliers, compared to 53.2 days a year earlier … and compared to the 40.1 days in which businesses with revenues under $500 million pay up.

The situation is not getting better. “We just updated our payables analysis for 2010,” says a spokesperson for REL Consultancy, the company that did the original WSJ research. “We see the same trends in 2010. Large companies continue to pay slowly, and they are still using their muscle to make their suppliers accept longer payment terms.”

Can recovery and credit crunch coexist?

jamessaft1.jpg(James Saft is a Reuters columnist. The opinions expressed are his own)

New studies from the Federal Reserve and European Central Bank show that, whatever else, a recovery in the economy is not being supported by a resumption in bank lending, raising concerns about how exactly growth will become self-sustaining when official stimulus ebbs.

The ECB last week released its loan survey showing banks tightened credit yet again for businesses and consumers, though at a less severe rate than in the previous quarter. Much was made of the fact that banks said they expected to ease terms to businesses, but not individuals, slightly in the last three months of the year.

Days later the Fed was out with its own survey, and again the news is getting worse more slowly, which must mean it is time to pop open the tap water. Banks are tightening terms and conditions to large firms, though fewer are doing so than before. Of course we should be thankful for small mercies, but the fact remains that this is a relative rather than an absolute survey, which means that even if fewer are being tougher the vast majority are being just as tight with money as they were three months ago when things were very tight indeed.

from From Reuters.com:

How has the credit crisis affected you?

The demise of Lehman Brothers a year ago sparked a collapse in financial market confidence and set of a series of reactions that have spread hardship into the four corners of the globe.

Reuters News has charted the key events and their impact in "Times of Crisis" -- a major new multimedia production on Reuters.com. (See it here.)

We'd like to add the experiences of Reuters readers. So, if you or your family have been affected by the events of the past year then use the comments section below to share your story.

U.S. should batten down the TARP

James Saft Great Debate – James Saft is a Reuters columnist. The opinions expressed are his own –

The U.S. faces a lengthening series of request from industries and interests seeking shelter under the Troubled Asset Relief Program, most of which it should dismiss out of hand.

YRC Worldwide, a large trucking company, told the Wall Street Journal it will seek $1 billion in TARP funds to help relive it of its pension obligations.

Time for China’s banks to think local

wei_gu_debate– Wei Gu is a Reuters columnist. The opinions expressed are her own –

When foreign strategic investors were invited to take stakes in Chinese banks, the word “strategic” had a clear meaning for their hosts.

The banks were supposed to stay in for the long term, and that’s why they had the chance to buy big stakes at bargain prices. Yet many have behaved like “foreign speculative investors”, as they are now called in China — they took the cheap deal and then flipped the shares for a fast profit.

Barclays monoline insurance ploy pays off

Margaret Doyle– Margaret Doyle is a Reuters columnist. The opinions expressed are her own –

By Margaret Doyle

Barclays has avoided the dead hand of state shareholding and, on Thursday’s evidence, it looks as though it will escape completely.

Barclays Capital has enjoyed a storming first quarter — so good it is hard to see it being sustained — which has allowed the bank to make more big write-downs and still report a 15 percent increase in pre-tax profit.

Turning the tables: Can you help Davos leaders?

Klaus SchwabDavos is a well-rehearsed event and everyone knows the part they should play. Business and political leaders gather each year to tackle the major challenges of a global economy while the rest of the world, or those of its citizens who are interested, look on from afar. But this year, for obvious reasons, things are different. The notion of leadership has been coupled in the public mind with that of responsibility. The tone here is a little more humble and the attitude more open-minded. There’s a recognition that new thinking is required.  A suitable time, perhaps, to turn the tables on convention and have Davos delegates ask the questions they can’t answer and for global citizens to offer solutions.

Gamefully opening the discourse is Professor Klaus Schwab, Founder and President of the World Economic Forum. YouTube Preview Image

If you’ve got suggestions for Klaus then use the comments section below.

Credit control will be much more intrusive in future

John Kemp Great Debate– John Kemp is a Reuters columnist. The views expressed are his own –

The international system of bank regulation, epitomised by the Basle II process and the light-touch principles-based regulation of Britain’s Financial Services Authority (FSA) has comprehensively failed.

In too many instances, light-touch principles-based regulation with an emphasis on banks’ internal risk controls turned out to be no effective regulation at all.

A new direction in global financial regulation

John Kemp Great Debate– John Kemp is a Reuters columnist.  The views expressed are his own –

UK Prime Minister Gordon Brown’s call today for a new G20 charter of principles on financial regulation  reflects an emerging consensus among policymakers that, once the immediate crisis has passed, the regulatory framework must be fundamentally redesigned.

In particular, policymakers are concerned with how to correct the basic moral hazard problem in which bankers have an incentive to extend too much credit, while private firms and households have an incentive to take on too much debt.

from The Great Debate UK:

Britain faces recession without housing ATM

James Saft is a Reuters columnist. The opinions expressed are his own.

james-saft1Even in the good times, many British consumers were borrowing against their houses just to fund routine consumption, indicating a big hit to come for retail sales and for the banks who hold the loans.

With house prices falling rapidly and mortgage debt tougher to get, it is no surprise that homeowners are less able and inclined to borrow against their houses in order to spend.

That will be hitting the High Street now - analysts are expecting a 0.6 percent fall on the month in retail sales for November when data are released later this week. But a rise in unemployment next year could expose a really serious weakness in household finances, as consumers who counted on being able to extract wealth from their houses to smooth consumption in bad times find that, when bad times come, the wealth isn't there and the banks don't want to lend anyway.

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