New data from AI firm Sidetrade has highlighted the industry sectors in the UK that have been particularly affected by the COVID-19 pandemic. The Sidetrade tracker analyses twelve business sectors and, as of 25 May, the UK sectors hardest hit by payment delays tied to the crisis are:

• Finance, insurance, and real estate, where 76% of invoices are over 10 days overdue.
• Information, communication, and technology (ICT), where 60% of invoices are over 10 days overdue.
• Leisure and hospitality, where 55% of invoices are over 10 days overdue.

Finance, insurance, real estate, and ICT were areas where late payment rate was already high prior to the pandemic, at 56% and 53% respectively.

The Sidetrade tracker showed that sectors least impacted by the crisis include the food industry (19% invoices over 10 days overdue), retail (22%) and manufacturing (23%).

Evidence from the Sidetrade tracker shows a strong correlation between payment behaviour and economic activity. The latest tracker release is the first to see the effect of exit from lockdown. With 38% unpaid invoices as of 25 May 2020, the UK has seen a slight improvement in customer-supplier relations. This is the first positive effect of lockdown exit. Nonetheless, the unpaid rate remains extremely high, representing a threat for many businesses. Late payment deterioration in the UK rose more than 26%.

For the first time, all six countries tracked - the UK, France, Spain, Italy, Belgium and the Netherlands - showed a significant improvement, even though the unpaid rate is still high. The UK has the highest rate (39% unpaid), whereas the Netherlands can boast the lowest figure: 18% unpaid, not far from their pre-pandemic rate of 15%.

The lending option

For businesses struggling as a result of the COVID-19 pandemic, various government lending schemes have appeared to support the economy. In the UK, fintech business lender MarketFinance has just been given the green light by the British Business Bank to operationally start lending business loans and invoice finance as a lender under the government-backed Coronavirus Business Interruption Loan Scheme (CBILS).

CBILS is designed to support the continued provision of finance to UK smaller businesses (SMEs) during the COVID-19 outbreak. It is intended that these finance facilities will help SMES who are experiencing lost or deferred revenues, leading to disruptions to their cash flow. From today, businesses can immediately apply for a CBILS loan or invoice finance facility through MarketFinance via its website.

Under the CBILS, the first 12 months of interest on the loan and any arrangement fees will be paid by the UK Government as a Business Interruption Payment. This means smaller businesses will benefit from no upfront costs and lower initial repayments. No personal guarantees will be required, so borrowers and guarantors will not have to put up their principal private residence as security. SMEs can apply for a MarketFinance CBILS term loan (up to 3 years) between £50,001 and £150,000.

Businesses looking for cash flow or working capital can get finance on their outstanding invoices (with long payment terms, where they are waiting to be paid on work completed). As with business loans, there will be no arrangement fees or interest charged. SMEs with an annual turnover of at least £100,000 can apply for a MarketFinance CBILS invoice finance facility between £50,0001 and £5m.

Looking ahead: economic stimulus

While business loans are helping companies keep the lights on today, they are very much a short term response to the crisis. Looking to the longer term, governments and central banks around the world face an even bigger challenge to support their economies out of the current downturn. Looking at how to achieve this, Germany has recently announced a  €130bn stimulus to support growth after COVID-19.

The German coalition committee agreed on a so-called “Fiscal Stimulus and Crisis Management Programme” (Konjunktur- und Krisenbewältungsprogramm). The overarching goal of the programme is to boost the economy, secure employment, unleash Germany’s economic potential, mitigate the adverse economic and social consequences due to the crisis, strengthen the federal states and municipalities and, finally, give financial support to families.

The two programmes have a total volume of €130bn (around 3.8% of GDP in 2019) and are therefore (at a first glance) clearly above the expected range of €80-100bn, according to a report from Deutsche Bank Research that analysed the announcement. At a second glance, however, DB Research suggests that the fiscal package is somewhat lower than it seems as the part of the €25bn of "interim aid" paid to firms should be financed through unused resources from already existing programmes. As a result, the report understands that the effective size of the fiscal package is "only" around €105bn (3.1% of GDP in 2019) and thus very close to the stimulus volume of €100bn that Deutsche Bank Research had already assumed in its baseline scenario for 2021. However, the overall effect from the recent government stimulus package will probably be more front-loaded than anticipated, as large parts of the package (like the VAT reduction) will become already effective in 2020.

Given the deepness of the COVID-19 crisis, there was probably no way around for the government to come up with another large stimulus programme. The volume confirms the government’s paradigm in this crisis to do things big to maximise the psychological impact, the report says.

Deutsche Bank research expects that the temporary reduction in VAT will have a strong short-term economic effect on private consumption and thus also on the economy as a whole in the second half of 2020. However, this is based on a targeted strong pull-forward effect of private consumer spending, which is likely to be bought at the price of a weak development in the first half of 2021.

The report says that the promised rise in “future investment” is per se a good thing to boost the economy (given a large multiplier effect of public investment). Still, timely implementation could be an issue (implementation lags, pent-up investment). Therefore, the report notes, these additional investments will help raising Germany’s growth potential but are unlikely to have any meaningful effects on economic growth in the short- run.