5th Weekly Blog by Philip King, CEO of the ICM - Musings from China

I am currently attending, and presenting at, the 7th China International Credit & Risk Management Conference in Nanjing, and it is interesting to note how the topics of debate have shifted since my last visit 12 months ago. There is much more discussion, for example, around the move to open account payment terms rather than letters of credit for international trade, and the move towards alternative sources of finance such as factoring - a conversation that mirrors our own experiences back in the UK.

It is noticeable, also, that there is increased availability of credit ratings within China on Chinese companies, and a clear desire for skills to support selling into the West rather than skills and knowledge simply for use in the domestic market.

We know that there is a rapidly expanding middle class in China, and this is placing increased demand on the trade and availability of expensive consumer goods. What is interesting, however, is that there are no personal insolvency rules or procedures in China, leading me to think about the OFT's recent warning to 129 debt management firms in the UK: http://oft.gov.uk/news-and-updates/press/2010/101-10

The report makes salutary reading and the paid advice sector evidently needs to do considerably more to clean up its act. We have ourselves spoken to the Debt Resolution Forum which is working hard to drive improvement. I sit on its Complaints Committee and there have been very few complaints. It is important that bad practice is highlighted, so remedial action can be taken.

Some ICM Members are asking me why the firms shouldn't be publicly named and shamed. The reason is simple: they can't, under part 9 of Enterprise Act 2002. That does not mean that we will never know their identity, however. If they fail to improve, and the OFT decided to take formal licensing action, then their names will be published for all to see.

4th Weekly Blog by Philip King, CEO of the ICM: EU - support or overkill?

The European Union agreed new rules last week to update the existing EU Late Payments Directive. The agreement now needs to be approved by the full Parliament and is likely to be put to a plenary vote at the October session in Strasbourg.

Four key points were settled in the negotiations. The first placed a 60-day cap for public authorities; only in exceptional circumstances can the payment period be longer than 30 days and never beyond 60. The second fixed the statutory interest rate for late payment as the reference rate plus 8% and fixed a sum of 40 Euros as compentation for recovery costs.

For public entities providing healthcare, it was agreed that Member States may choose a deadline of up to 60 days, and finally that the verification period for ascertaining that the goods or services comply with the contract terms is set at 30 days.

I have no argument with making things as simple as possible and I have always said that arbitrary imposition of extended payment terms on small suppliers by large organisations in unacceptable and unethical, particularly when retrospectively applied. But whilst the EU may be pleased with its negotiations, I find a number of questions appearing in my head. For example:

• What happens when I have some obsolete stock to clear and giving very extended terms would have persuaded a customer to take that stock and sell it over time?

• What happens when I'm negotiating particular contract details and either I or the other party has some specific requirements where longer - or shorter - payment terms might have been one of the areas on which flexibility would help deliver a solution?

• What happens when an invoice is disputed and remains unpaid either justly or as a means to avoid payment?

• Will businesses that fail to meet invoicing requirements - or delay invoicing - be any better off?

As always the devil will be in the detail but I've watched with interest the introduction in France of the Modernisation Law in the last year and - anecdotally at least - I don't get the sense that there has been a huge positive impact. Credit Managers I speak to seem to be spending an inordinate amount of time trying to manage through the bureaucracy and confusion about what terms apply when and to whom.

I'd be the first to agree that the current situation is poor but I need to be convinced that this will be the panacea that's being suggested by Barbara Weiler and others. Good credit management practice can resolve many of the issues that arise and I fear we might end up with overkill that - with the best of intentions - stifles free enterprise.

http://www.europarl.europa.eu/news/expert/infopress_page/052-82070-256-09-38-909-20100913IPR82069-13-09-2010-2010-false/default_en.htm

3rd Weekly Blog by Philip King, CEO of the ICM - Pointless Bank Activity

In the Daily Telegraph on Tuesday, the Telegraph Business Club Editor James Hurley reported on a move by some of the major banks to have the creditworthiness of their business customers independently profiled in an attempt to defuse the row over small businesses' access to finance.

Now I'm generally supportive of banks. I don't want them to lend money to businesses that aren't creditworthy (that is, after all, how we got into this mess in the first place), and I understand the obvious dilemma of being under pressure to repair balance sheets AND lend to small businesses.

This though is disingenuous. Historically, the ICM has always fought against the raising of thresholds for modified accounts. But we all know that most small businesses file modified, abbreviated, or unaudited accounts as it is. Indeed some of them fail to file any form of accounts at all, so the outcome of this exercise is inevitable. The businesses banks won't lend to have poor credit ratings so their decisions can be easily justified!

What would be far more beneficial is if the banks spent time and energy in helping to educate and encourage small businesses to provide management accounts more readily so that more genuine, better informed decisions can be made. Transparency will, of course, be essential, and honesty on both sides would be welcome.

As I told the Daily Telegraph, I'd rather the banks were campaigning for provision of information rather than embarking on what to me seems a pointless and futile exercise.

If you'd like to read the full article click: http://www.telegraph.co.uk/finance/yourbusiness/8000675/Report-on-bank-small-business-lending-decisions-a-pointless-exercise.html

2nd weekly blog of Philip King, CEO of the ICM - skills and risk

A few days ago, Rebecca Smithers, consumer affairs correspondent of The Guardian wrote that British manufacturing is at risk of 'collapse'. The reasons she cited included a worsening skills shortage that will leave thousands of hi-tech jobs unfilled over the next five years. More recently, a leading academic also stated that it is not just in the high-tech industries that skills are missing. He warned that all areas of business need the right, relevant skills to be successful, and this includes skills in credit management.

It is comforting to know, I hope, that there are organisations out there - the ICM foremost among them - who take such warnings seriously. The successful and ongoing development of our qualifications, and our work with employers, practitioners, and industry is aimed at ensuring the industry becomes more professional, and that the right skills are available to help Britain through the recovery.

The property and environmental services giant Connaught has collapsed into administration, putting thousands of jobs at risk. In June, the company warned that public spending cuts, designed to reduce the government's budget deficit, would impact 31 projects, reducing its revenues by £80m this year. This hit, it said, "would push the company into the red." Public sector cuts are going to hit businesses across all sectors, and many of those will be our customers.

In another annoucement that links closely with this theme, I note that the "time to pay" scheme has now reached its peak as HMRC appears to be rejecting an increasingly large number of applications to take part in the initiative. "Time to pay" allows businesses to defer tax payments during the recession. Syscap, an independent finance provider, says that in the last few weeks, a good many businesses have been in contact to secure loans to meet tax obligations either becuase HMRC has rejected their application to the scheme or because they have taken a business off the scheme. Perhaps this should not come as a surprise, but credit professionals are going to see their customers under greater cashflow pressure as a result, and the number of insolvencies is likely to rise as I've been predicting for several months now. Knowing our customers - and their customers in turn - is going to be more important than ever in the months ahead. Close monitoring of risk will enable creditors to take action to avoid or at least minimise potential bad debts.

1st Weekly Blog from Philip King, CEO of the ICM

There were two announcements in the last few days that especially caught my attention. The first was by the Forum for Private Business (FPB) who had submitted a freedom of information (FOI) request asking police forces how quickly they processed payments in the 2009/10 financial year.

It revealed companies in some parts of the country had to wait more than two months for payment from their local force. Companies doing business with the police in other areas, however, were paid in a matter of days.

Now there is nothing new or surprising in this. Across all industries and sectors, there are differences in practice and experience and I bet even those paying promptly end up paying some suppliers quicker than others.

The reason those suppliers get paid more quickly than others is similarly no secret. It comes down to having good credit management practices. Getting the basics right, such as ensuring the invoice details are correct and building personal relationships between departments is key to getting paid on time. Some practice is ingrained and part of the business culture, but other skills can be taught, and this is our role.

The second piece of news I read was in the Independent. It announced that one in 10 northerners 'will be jobless in the next 5 years'. A leading economics think-tank predicted that unemployment is set to breach the psychologically important 10 percent level over the next five years - but only in the north of the country.

Unemployment is bound to grow and - while it may be worse in the North - it's going to affect all areas, particularly as the public sector cuts bite. One impact will be the emergence of more sole traders who see redundancy as an opportunity to leave the world of PAYE and strike out on their own with their redundancy cheque firmly in hand. As suppliers, we should be prepared to give them good advice that will help their business survive the first critical 12 months. We could do worse than point them to the Managing Cashflow Guides at www.creditmanagement.org.uk

Meanwhile closer to home, the ICM exam results came out last weekend. As with the 'A' level students, some learners will be delighted with their performance and others devastated and disappointed. Studying while maintaining a career is never easy and they deserve our congratulations for their commitment (whatever the result) and our support. They are the credit professionals of tomorrow and will help raise the standards of what we do.