Let healthy companies help out businesses in difficulty, says economist

Let healthy companies help out businesses in difficulty, says economist
© PxHere

Financially healthy companies should be encouraged to show solidarity with businesses who are suffering because of the pandemic, in order to avoid thousands of bankruptcies, the business intelligence consultancy Graydon has proposed.

One way that could be done is for suppliers to delay demanding payment of invoices, to give struggling businesses time to recover from the effects of the pandemic. And governments could offer tax incentives to make that a more attractive prospect.

Twenty-nine percent of the companies in our economy have resisted the impact of the corona crisis well and still have significant reserves,” Eric Van den Broele, head of Graydon’s research department, told De Tijd. “Why can’t we use their reserves to serve other struggling companies?”

Graydon’s calculations looked at the effects of a 30-day and a 90-day delay in demanding payment, with government offering a tax advantage equivalent to the interest that would have accrued to the money over the same period.

The measure would effectively cost the government nothing, as the tax break would be more than compensated for by the continued survival of the company receiving the help.

The Good Samaritan companies, meanwhile, would be ensuring their own clients remained in business, while creating goodwill for the future relationship.

Just like the state guarantee for bank loans that was introduced earlier during the crisis, this measure could also have a huge multiplier effect,” said Van den Broele. “And it would activate money that would otherwise lie dormant, left in reserves without being used productively.”

So as to ensure the measure was successful, Graydon suggests excluding companies that were already in difficulties before the coronavirus crisis, and whose problems are therefore not entirely a result of force majeure. That only concerns about 2.7% of companies, who would be easy to identify, Van den Broele said.

Also, the tax advantage would have to be limited in time, after which time it could be considered not to be working.

As De Tijd reports, a number of companies have taken similar steps already on their own initiative. Leuven-based brewer AB InBev, for example, has given its pub tenants extra time to pay their bills, to prevent them going under due to the lockdown.

And energy provider Engie has gone in the opposite direction, by setting up a fund to pay its own suppliers faster, to help them with their cash flow and avoid serious financial problems.

Alan Hope
The Brussels Times

Latest News

Copyright © 2021 The Brussels Times. All Rights Reserved.