Wednesday, 01 July 2015 10:48

Credit Control Update - Greek Capital Controls

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Greece's government has imposed capital controls and closed banks until after a July 5 referendum on a deal with European creditors.

The following information is provided for any company concerned about customers based in Greece and the impact the capital controls will have on their cashflow in the short term.  This guide covers basic credit control information, if you have customers already behind on payment arrangements allowing further credit is at best ill-advised.

What are capital controls?

Greece has imposed temporary capital controls to prevent the outflow of large amounts of currency from the country. Capital controls are measures designed to limit the flow of money/capital/funds in and out of a country. As the Greek authorities have outlined, these will be temporary in order to protect the Greek financial system and economy. Alongside capital controls, bank holidays aim to further stabilise the liquidity situation of the Greek banking sector.

The controls limit the volume of transfer of funds out of Greece. They also place strict limits on cash withdrawals in Greece. The introduction of these controls could cause general delay and disruption to the Greek financial system. This could affect payments from Greece, including by credit and debit card.

The controls only apply in Greece. They do not apply to Greek banks, business or persons in the UK. This means that branches of Greek banks in the UK will not be applying the controls. It is important to be aware that the implementation of controls in Greece might cause some disruption to the regular operation of these branches.

Receiving funds from Greece

It is not illegal to receive funds from Greece. However, in order for a transfer of funds from Greece to be legal, it must be made under the official exemption regime from the Ministry of Finance.  Delays with payments are inevitable.

What can I do?

If your company trades with customers in Greece it will find this situation has a direct impact on cashflow in the short term. Numerous factors will be in play that could impact your bottom line, these include:

  • The business you do

You need to evaluate the emerging risks associated with continuing to supply Greek companies in the current markets.  Whilst capital controls largely limit consumers using physical cash, it is having a devastating impact on the wider economy and the current financial controls could be extended.

  • Your client's business sector

With capital controls limiting withdrawals of cash to €60 per person, per day for Greek nationals, any customer of your company that supplies the general public in Greece is almost certain to face immediate cash shortages in the short term in addition to an inability to make overseas payments.  They may also be unable to secure goods or services critical to their survival as business credit facilities in Greece continue to be withdrawn.

  • Your place in the supply chain

If your company is at the top or part way in the supply chain, you need to try and evaluate the possible short to mid-term impacts of delayed payments to your own customers.  Your company may not have any direct trade with Greece, but late payment has a tendency to cascade up the supply chain and a non-payment to your customer this month could well be a non-payment to your company next month.

  • The location of your customers bank

Capital controls effectively block transactions from Greek banks to accounts outside of the country without the permission of the Ministry of Finance.  However capital controls do not apply to Greek banks with branches in other countries so if your customer uses a Greek bank in the UK transfers should proceed as normal.

As a direct result of these temporary controls Greek companies will experience problems making payments internationally. The main impacts your business may experience relate to contractual payment arrangements and the transfer of money, both circumstances will have an immediate impact on your cash flow. In our thirty year experience when countries have experienced disruption in the past, such as in Cyprus in 2013, our client base experienced:

  • Delays on payments
  • Delays with deliveries (causing cash flow problems for your customer)
  • Spikes or slumps in demand (due to the ongoing economic uncertainty)

First things first

If your business trades with Greek customers directly, the first thing you need to do is try and contact them to clarify their current position.  You need to identify the following information:

  • Does your customer currently expect to be able to meet agreed payment deadlines?
  • Does your customer have any contingency plans in place if they can not meet payment deadlines?

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Capital Controls will impact the transfer of monies internationally so you will likely find even customers who can afford to pay face significant delays in actually issuing payment.

If your customer does indicate that they will be facing issues making payments according to agreed credit terms, be firm but flexible.  Any payment you receive from a client in Greece ultimately reduces your exposure and you should be creative in your approach to your accounts payable.  Do they have any means to make payment from outside of Greece?  Can you agree any other means of receiving payment (or even payment in kind in extreme circumstances)?

Creditors should carefully examine the risks to their cashflow if a Greek customer does not pay.  If you suspect your business may face a shortfall now would be the time to start looking at potential finance options.  It is better to have access to a cash injection and not need it, than need a cash injection and find your business is unable to secure it and it could be some time before capital controls are eased for businesses.

Insurance and finance

If you trade with Greece it would be wise to seek an early conversation with your bank and/or credit insurers.  You can find out more about potential short term financing options by speaking to your bank directly, for a list of government backed finance initiatives including loans have a look on the Gov.uk site here

Insuring exports to Greece

For future exports UK companies would be well advised to consider export insurance if appropriate. UK Export Finance assesses applications for insurance on exports to Greece on a case-by-case basis.

The bottom line

If your company does business with customers in Greece or you think the ongoing capital controls will impact your business now is the time to take action.  Speak to your customers, identify your short to mid-term risks and make your financial forecasts based on what you know now, but be prepared to revise these as conditions change.

Be mindful that Capital Controls could well extend beyond the current period and don't bank on a swift resolution.  When Cyprus announced capital controls in 2013 most were lifted the same year, but what many don't realise is transfers of larger sums internationally was still subject to restrictions until just a few months ago.

Our agent Costas in Greece tells us that many businesses have shut down for the week or are operating with a skeleton staff.  The wider economy, already struggling, has effectively ground to a halt.  Credit between businesses inside Greece is non-existent as trust continues to dwindle between retailer and wholesaler.  The outlook he says, does not look good and he would urge international creditors to make immediate contingency plans.

 

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Image "Greek flag" by Trine Juel is licensed under CC BY 2.0.

Contains public sector information licensed under the Open Government Licence v3.0.