Weekly blog by Philip King, CEO of the ICM -'An added perspective'

I wrote in my blog last week about the danger of imposing prescriptive maximum payment terms on UK businesses and mentioned, by way of example, the reported offering by Canon and Nokia of favourable credit terms in their bid to keep Jessops' shops open as a route to market. 

This weekend the press suggested that the music and entertainment industry is falling over itself to keep HMV outlets open with The Sunday Times carrying the headline: "Music giants rush to keep HMV alive". The report ran: "The world's biggest music labels and film studios are assembling a multi-million pound rescue package to prevent HMV from going out of business. Universal Music, Warner Music and Sony are set to cut the price of CDs and DVDs, and give the retailer generous credit terms……."

Thinking on this reminds me of the wider role that credit professionals play in their businesses beyond risk mitigation and cash collection. When I address 'credit' audiences, I frequently remind them of the value they add to their businesses by contributing to, and in many cases even driving, the sales effort and activity. I refer to examples in my own career when I used a variety of tools and tactics (perhaps archaic by today's standards!) available to me at the time ranging from a credit reference agency to identify and pre-approve business customers for a number of mobile phone connections as a way of driving sales, to creative financial packages to allow my employer (a computer manufacturer) to supply product. We had a network of dealers, few of whom were good – on a credit basis – for any supplies on open account terms at all. Escrow accounts, back-to-back deals, end-user guarantees and many more solutions enabled us to ship product that would otherwise have remained unsold in the warehouse.

And this is where credit management comes into its own; where we can demonstrate real value. It is why credit management is such a challenging and rewarding career. In my 34th year as a credit professional I still get a huge kick out of it and even greater pleasure from leading an organisation of which I'm so proud and which remains committed to delivering the vital support our members need to deliver the cash.

Weekly blog by Philip King, CEO of the ICM -'Maintaining forward momentum'

 

I've received some criticism of my comment about payment terms quoted in the Telegraph last Sunday. Coverage of the Prompt Payment Code (PPC) included my assertion that the drive by many for a prescriptive maximum 30 days credit terms is misguided. 

I make no apology for my comments and stand by them; my position is clear. Payment terms are one aspect of a trading relationship and, as such, should be open to negotiation in the same way as other factors such as price, quality, service levels, delivery arrangements etc already are. If maximum payment terms are stipulated, then one differentiator is removed. 

I remember in a previous role as Credit Manager of a computer manufacturer using very long payment terms as a carrot to persuade retailers to take obsolete printers that would otherwise have been discarded and destroyed. Offering longer payment terms can be a way of gaining business or obtaining a better price, while shorter terms can help mitigate against higher risk or compensate where competitive pressure demands lower prices.

By way of example, the Sunday Times last weekend reported that Canon and Nikon had offered favourable credit terms to Jessops in their attempts to keep it in business and maintain their vital shop window into the British retail market. I concede that their efforts spectacularly failed but, if maximum payment terms were introduced, they would not even have been able to try.

The day payment terms can't be negotiated between a supplier and customer is the day that a nail is hammered into the coffin of free market trading. I'm not for a minute suggesting that it is acceptable for large customers to exploit their suppliers, and especially smaller ones, by imposing unreasonable payment terms. That is unacceptable, just as refusing to pay a reasonable price for the products being purchased would be unacceptable.

The Prompt Payment Code was intended to drive a change in culture where good practice and paying on time, and to the agreed terms, becomes the norm rather than the exception. It is intended to get us to the point where suppliers have certainty about when to expect payment. It's great to see the increased momentum and visibility, and the increasing number of organisations signing up to the Code, but let's make sure that the debate continues to move us forwards and not back.

To become a signatory visit http://promptpaymentcode.org.uk

To read previous blogs visit http://www.icm.org.uk/home/ceos-blog
 

Guest blog by James Caan - 'The certainty of payment'

Cashflow, as every entrepreneur will tell you, is the lifeblood of business. But despite this simple truth, the challenges that all businesses – and especially smaller business – face this year and every year, is how to keep the cash flowing? This is especially challenging when it seems that every barrier is being put in your way to stop you from getting the cash you not only deserve but is yours by right.

 

The basics are, of course, to invoice on time, promptly and accurately. They are to ensure that your quote has been accepted, the product or service delivered, and the terms and conditions of payment agreed in advance. If you do nothing else but stick to these simple rules, then your business will not only survive, but it will actually have every prospect of growing and contributing to the economic recovery that we so dearly seek.

 

And there is more that you can do. The Government is keen on encouraging the banks to lend, to support businesses through the good times and the bad, but overdrafts or loans are not the only ways of ensuring you have the cash you need, when you need it. Alternative funding mechanisms such as factoring and invoice discounting rarely deserve the negative publicity they are inclined to attract, and Supply Chain Finance – a particular favourite of Government in 2012 – also has its place for certain companies at certain times.

 

Knowing your customer is a particular mantra of the Institute of Credit Management, and again the tools at a company’s disposal – from credit reference agencies to credit insurance – all have a role to play not just in protecting you from the damaging impact of not getting paid, but more positively in taking on new customers and even new markets, safe in the knowledge that you are better informed.

 

Much was written last year about naming and shaming the poorest payers, but there is so much that a smaller supplier can do to bring about the certainty of payment. As professionals, it is incumbent upon the ICM and its Members throughout 2013 and beyond to ensure that the support is there for these companies when they need it most.

 

To read the full press release click here.