Weekly Blog by Philip King, CEO of the ICM - 'A journey of discovery'

In my blog last week I mentioned that I'd seen a really good example of the Government working with the wider business community to deliver growth through tangible and practical support.  I said that sometimes Government has to create an environment in which something can be created and delivered without its direct and ongoing involvement.

I was referring specifically to the launch of the Start-up Loans Company, which many of you will by now have seen in the press.  You may also have learned from our own ICM announcement that I've been invited to join the Start-up Loans Company board.

The Start-up Loans Company is different from any previous Government scheme I have ever seen.  It is not a case of ministers throwing money at a problem just to say that they are doing something – money that is often squandered. This scheme is much more focused, and has a specific purpose.

The Start-up Loans Company is a limited company with an independent board chaired by respected entrepreneur James Caan.  While the funds come from the Government purse, our role as a board is to be responsible for identifying appropriate delivery partners, and for setting the ground rules that they will have to follow. Government is stepping back, letting the board lead the initiative, and giving us the autonomy to be able to drive the scheme forward.

Loans will be at a competitive interest rate, and are likely to average £2,500 (though not a maximum as has mistakenly been reported elsewhere).  They will be repaid over a period of up to five years.  Crucially, the initiative – as Lord Young stressed as the launch event – is not just about the cash; it is also about the support the young entrepreneurs (aged between 18 – 24) will receive from a network of mentors across the country, to help turn their dreams into reality.

The board is also comprised of experts chosen to help the scheme succeed.  Each board member has a particular area of responsibility and will be expected to deliver real tangible results.  It is especially gratifying to see the importance of cashflow and credit management being recognised and getting their rightful place. My brief is to ensure we have the right mechanism, process, procedure and drawdown facilities in place to enable the smooth running, and monitoring, of the issuing and recovery of loans.  The sort of things that credit professionals do every day, but not what you'd necessarily and ordinarily expect to see included in a government initiative.

I can't wait to get started, and I'm going to enjoy working alongside Lord Young, James Caan, Bev James, Julie Meyer, Duncan Cheatle and the other directors.  I believe they are going to teach me more than a thing or two along the way and I know I'm going to get as much out of this journey as I put in.  Seeing youngsters set up their own businesses and take steps towards their dreams is a massive opportunity and I feel privileged to be part of it.

Weekly Blog by Philip King, CEO of the ICM - 'Substance over form'

Am I alone in getting increasingly frustrated by politics taking precedence over substance? I've been listening in recent days to the spat between Adrian Beecroft and Vince Cable about the former's report on employment law, with Chuka Umunna's contribution adding plenty of fuel to the fire.  My frustration is that there has been very little talk about the detail of the report with most of the debate focused on whether or not Vince Cable should be called a socialist, and whether Adrian Beecroft's background (he has a career in private equity and is a substantial donor to the conservative party) makes him even the right person to write the report.

All very interesting and media worthy but what I'm more interested in is the content of the report, the recommendations it makes, and how they might – or might not – benefit the economy.  Sadly, the real detail and its potential impacts is conspicuous by its absence from most reporting.  I've downloaded the draft of 12 October 2011 and the published version of 24 October 2011 to my Kindle and will have a read through over the next couple of days.  I'll be able to draw my own conclusions then and filter out the noise of the politics and rhetoric.

On a separate note, I've had some really interesting meetings this week and will be able to share more details in my blog next week.  In essence, I've seen a really good example of the Government working with the wider business community to deliver growth through tangible and practical support.  Sometimes Government has to create an environment in which something can be created and delivered without its direct and ongoing involvement.  I believe I'm seeing an excellent example of that, but more next time…

Weekly Blog by Philip King, CEO of the ICM - 'Shooting the phoenix'

I sat on a panel at an Insolvency for Creditors event last week and there was, not surprisingly, some vigorous discussion about Pre-Pack Administrations.  There were equally strong feelings expressed at the ICM Think Tank this week when the subject came up again, and I expect to hear similarly robust views when I attend a Round Table chaired by Norman Lamb, the Minister responsible for the Insolvency Service (IS), this week.

Pre-Packs are an emotive subject but what seems to raise temperatures even higher is the issue of phoenix companies where the same directors seem to be able to acquire their previous business for a very low valuation and continue running it – often with only a slightly varied name – but without the burden of previous debts.  Often they leave unsecured creditors with a legacy of unpaid debt and the emotional reaction can hardly be a surprise.

Two sentiments were expressed at last week's event.  Firstly, Insolvency Practitioners need more power to be able to take action against directors who have clearly abused the privilege of limited liability and, secondly, the Insolvency Service should disqualify more directors.  Some in the audience were probably surprised to hear that 1,200 directors were disqualified last year and, of these, 125 were banned from holding a directorship for 10 years or more.  I accept it could be argued that these numbers should be higher but I am more concerned that there was little awareness of them.  If the credit professionals attending were surprised then so would current company directors be and the disqualification activity cannot be acting sufficiently as a deterrent.

Details of recent Insolvency Service press releases can be found here http://insolvency.presscentre.com/ and I would urge the IS do more to promote their disqualification activity.  Plenty more could and should be done, but getting this message out would be a good start.

Weekly Blog by Philip King, CEO of the ICM - 'Fatal distraction'

So Wonga has entered the business loan market and added to what is already a fast and dramatically changing landscape.  The introduction of services such as Funding Circle and MarketInvoice have already had a big impact on how businesses can source finance and the recent Breedon Report recognised that alternative funding sources are here to stay.  Couple that with last week's Bank of England Trends in Lending report which said….. "The annual rate of growth in the stock of lending to UK businesses was negative in the three months to February. The stock of lending to small and medium-sized enterprises continued to contract….." and you can see why Wonga might sniff an opportunity.  I'm not sure Wonga is a good solution for small businesses strapped for cash but it's little different to a small business owner funding his business using a personal credit card or two, and that's been happening for years.

 

What worries me more is the suggestion touted in the media and elsewhere that solutions like MarketInvoice are a cure for late payment.  They're not.  MarketInvoice allows a business to sell invoices to a network of institutional investors and it can release the capital tied up in those invoices in real time.  In the short term it can therefore address the cash-flow problem caused by late payment but it's not a cure.  Payment still has to be obtained and, if the invoice is not eventually paid, the amount will have to be refunded to the investor.

The problem as I see it is that – having obtained funding against the invoice(s) - the business owner has removed the immediate cash-flow hole caused by non-payment and can focus attention elsewhere.  The problem hasn't gone away though, and if there is a fundamental problem preventing payment it still needs to be resolved.  Let's not forget, and let's make sure that small businesses don't forget, that the best way to avoid late payment is to get the basics right: knowing your customer, agreeing payment terms in advance, invoicing correctly and promptly, and chasing payment immediately it becomes overdue.  Anything that slows that process, or distracts from it, could lead to far more serious problems; timing is all-important in the management of cash-flow and collection of amounts due and, while attention is elsewhere, the slow-paying customer could fail and become a bad debt rather than just a late payer.

Cashflow keeps business in business and good credit management is vital to maintaining that cash-flow. Mixing messages is not helpful.

http://www.creditmanagement.org.uk/bisguides.htm

Weekly Blog by Philip King, CEO of the ICM - ' The long and the short of it'

I've been to some interesting meetings this week but one, in particular, reminded me of the importance of looking at both the short and the long term.

Businesses often make decisions that seem right at the time but can then look back two, five, or even 30 years later and realise how flawed their thinking must have been.  I was reading a book recently that reminded me that, in 1982, IBM didn't buy Microsoft because - at $100 million – it was too expensive, and there are countless other examples of businesses failing to take, or turning down, an opportunity that would have been transforming.  I've been listening to Steve Jobs' autobiography in the car over the last few weeks; Nolan Bushnell's decision not to invest $50,000 in return for 33% of a company that recently hit a valuation of $600 billion must stand out as the biggest of all big missed opportunities (although he's done pretty well out of speaking in public about that missed opportunity)!

It's all too easy to make decisions for the short-term that fail to cater for the long term needs of the business and we often see very senior people lose their jobs (football and FTSE100 companies are primary examples) because short term results are not good enough.  The problem with this is that short-term expediency ends up driving the organisation and that often isn't best for the business, its people, or the economy.  CIMA published a fascinating report recently called Rebooting Business: Valuing the Human Dimension.  The report draws on the experience and views of a number of senior business leaders and to quote from the summary:

"If they get the human dimension right, companies will be able to focus their resources on the right things and create value for the long term.  One of the greatest challenges to realising the potential of the human dimension is the level of focus on quarterly reporting and short-term results. The value that people add will not appear in the quarterly reports and may not be apparent in the short run, but it must be given its due if we expect to make the right decisions.  Adopting strategies that will sustain success for a business is not a 'nice to have'………….."

One of the ICM's key priorities is to work with organisations and individuals to raise the value of the human dimension in business by developing the careers of credit professionals and by raising the performance of the teams they work in and run.  It's great to hear serious business leaders recognising that people are as important as numbers, and need to be a priority for sustainable business.