Weekly Blog by Philip King, CEO of the ICM - 'Banking on insurance'

There was an interesting piece in The Times on Monday talking about business lending by banks and a proposal for a Guaranteed Repayment Insurance Policy. Apparently the scheme would involve the issue of an insurance policy that could be purchased by a small business and offered to banks as security for a loan. The Government's new Business Bank is considering offering a subsidy to insurers under which it would underwrite 15 percent of the cost of any default.

The theory is that such an offering would remove one of the obstacles to business lending when the collateral demanded by the banks is so high that the taking out of a loan becomes prohibitive or too personally risky for the borrower. Small business owners would, it is thought, be more comfortable paying the premium than putting their home on the line as security.

BIS says it is only currently looking at the proposal and has made no commitment, and I agree it is right to be looking at new and innovative ways to increase the flow of money into a much needed part of the economy. I can see the attraction to a small business whose owner is fearful of losing his house if the enterprise fails but, given the paucity of cash available to businesses in their earliest days, finding additional money to pay for an insurance policy on top of all the other overheads will be a challenge.

As always the devil will be in the detail and I have no idea what the pricing model might be but I'm afraid I'm a bit sceptical. It already worries me that someone can start a limited company with no business knowledge, no awareness of their obligations and responsibilities as a director, and no capital. This scheme would, I fear, encourage the taking on of an additional expense in return for lower personal risk at a time when the business is least able to afford it. The consequence of that will be reduced profits - or increased losses - and a greater propensity for failure.

Weekly Blog by Philip King, CEO of the ICM - 'Neither borrower nor a lender be?'

I was in Basel earlier this week for the ICTF Conference. It's always a good opportunity to catch up with credit professionals from around Europe and beyond, and great to hear some of the issues being faced and how they're being addressed.

 

Flights and travel gave me the opportunity to read the FCA's recently published consultation: 'Detailed proposals for the FCA regime for consumer credit'. We'll be providing the opportunity for members to submit comments through our November ‘In Brief’, and I won't go into any detail on the 193 pages, nor the 387 pages of the Appendices here. I do though want to make just one comment about the FCA's stated intention to focus on the Payday Loans sector.

 

I've written several blogs over recent months arguing that the OFT should, in its final year, take action over the absence of evidence that affordability tests are being adequately carried out by payday lenders. I've consistently asserted that this is the key failure of the market and should be addressed with vigour. It should, after all, be the determinant in all credit decisions regardless of sector, size or nature.

I've given up hoping that the OFT is going to take any serious action on this in its final days but I was encouraged to read these words in the consultation: "Our proposals.........are based on the principle that money should only be lent to a consumer if the consumer has the ability to repay and in a sustainable way." And in his foreword, FCA Chief Executive Martin Wheatley says: "The OFT affordability guidance is good, but the OFT’s own research shows too few firms implement it. We will put it into our rules and guidance, and enforce this."

 

Martin's last two words are the most important - let's hold the FCA to account and ensure it delivers.

 

 

Weekly Blog by Philip King, CEO of the ICM - 'Better Late than Never'

There's been a late payment furore this week, in my world at least. I was interviewed on 5Live Investigates on Sunday and then on Monday the Prime Minister announced that BIS is going to launch a consultation on the subject.

In the midst of Cameron's announcement he repeated the suggestion made by Vince Cable in August that there might be penalties or fines for late payment. Quite apart from the debate about the practicalities of implementing such a step, the point missed is that the Late Payment legislation introduced in 1998 and strengthened by subsequent Statutory Instruments, most recently in March this year, allows for a fixed fee to be charged and supplemented by additional recovery costs for invoices paid late. The Institute's press release issued on Monday makes the point that the late payment charges are, by definition, a fine or levy for late payment.

Lord Digby Jones entered the fray stating that the Prompt Payment Code wasn't effective. He said it was merely a nice statement of intent. But that's exactly what it is: a voluntary commitment to treat suppliers fairly and pay them according to the terms agreed! If it had the teeth that he is demanding, it would cease to be a voluntary code. Now I'm not saying it couldn't be improved nor am I disagreeing with the sentiment for other or more stringent measures but I do get frustrated when people say something isn't working when it's doing what it says on the tin!

Some critics have suggested that I'm personally responsible for the Code and its defender-in-chief. I'm not, the ICM simply hosts and administers it for government but let's not dismiss the benefits out of hand: nearly 1,500 organisations have signed up, including 72 of the FTSE100; many have made fundamental changes to improve their internal systems and processes; and a dialogue has started where conversations didn't previously exist. If the Code didn't exist, by the way, the debate wouldn't be taking place and the issue wouldn't be getting airtime in the way it is. These are tangible benefits and should neither be ignored nor trivialised.

The fact is that the Prompt Payment Code was introduced as a measure to drive a change in culture complementing other measures such as the late payment legislation, naming and shaming by business organisations, and good credit management practice which - all too often - is missing from business relationships. This last point was driven home to me at an ICM Regional Roadshow in London yesterday when attendees heard about the breadth of influence credit management has, and the value it adds, across the entire business.

Credit management isn't just about collecting cash from recalcitrant customers. Good credit management starts before an order is even received by assessing the risk of a potential customer, establishing its identity and status, ensuring that it is good for the sums of credit likely to be incurred, submitting invoices correctly and promptly, understanding its invoice processing and approval systems so that they can be met, and taking swift action if payment isn't going to arrive when it's expected.

I'm capturing a huge amount of activity in a single sentence and not doing it justice but my point is this: we have to change the culture to one where treating suppliers fairly is part of the corporate responsibility agenda and we have to stamp out exploitation of small businesses by organisations that wilfully take advantage of their supplier base but that's not the whole story. We also have to help businesses to help themselves by getting the basics right. Unless we do that, we'll never see the improvement we all seek.

Weekly Blog by Philip King, CEO of the ICM - 'Why I am not Prime Minister'

This is going to be a shorter blog than I often write and it's more of a question based on my confusion than an exposition of my views! The ministerial reshuffle announced this week includes a move that leaves me perplexed, as did an earlier decision.

In September 2012, Michael Fallon was appointed Business and Enterprise Minister replacing Mark Prisk who'd held the role for a while before that, and was moving to a housing portfolio. So far so good, and Michael Fallon made a good early impression and has been instrumental in successfully driving the prompt payment debate. Then, inexplicably to me, in March 2013 the role of Minister of State for Energy was added to his portfolio meaning he was a minister in two departments: BIS (Department for Business Innovation & Skills) and DECC (Department for Energy & Climate Change). I couldn't work out then why a minister would be given a role across two separate departments given the workload and demands of one but that's probably why I'm not Prime Minister!

In this week's reshuffle, Michael Fallon has been made Industry & Energy Minister, I presume straddling the same two departments (BIS and DECC), and Matt Hancock has been appointed Minister for Skills & Enterprise working in BIS and the Department for Education. I understand such areas as late payment will be moving to Matt Hancock's remit. I've enjoyed working with Michael Fallon and his team. I think he's been effective, and I'm sure Matt Hancock will be similarly so but my question is this: why is attention to such an issue as late payment being potentially diluted through its responsibility being added to such a diverse portfolio? An issue which affects all businesses, particularly small ones, and impacts massively on the wider economy surely deserves better.

 

Weekly Blog by Philip King, CEO of the ICM - 'Selective Hearing'

I listened to a speech by a politician recently that was genuinely disappointing. It would be unfair and inappropriate to name him, and pointless because my observations are more about the general principles than the detail in this case. He was talking about a subject that I know well and have been closely involved in for some time so I know for certain that at least three of the statistics and statements presented and quoted were totally incorrect but they served to underline the failings of a current policy.

 

So why did the content of this speech lack credibility. Was it because researchers weren’t thorough enough, was it because the speech wasn’t adequately proof-read, or was it – more cynically – because the inaccurate data better supported the case being made? I may be naive, but I think it rare for politicians to deliberately set out to mislead. However, I also believe that expediency often leads to the use of selective and convenient use of data to ensure a particular point is made or argument justified.

 

Two thoughts. First, I really wish politicians could learn to resist the urge to spend their time looking for negatives that will allow them to score political points. I want to hear positive constructive messages that will benefit business and the economy. Second, I want to be able to trust what I hear and believe it to be credible. I’d rather be convinced by an objective argument considering the pros and cons of a proposal than feel I am being manoeuvred into a position that is unconvincing, where only one side of the debate is aired and where the underlying intention seems to be to undermine existing or previous policy rather than present serious alternatives.

 

I’ve missed attending the party conferences this year but I certainly haven’t missed the less savoury elements of point scoring, sound-byte grabbing, and economy with the truth!

Weekly Blog by Philip King, CEO of the ICM - 'Second time lucky?'

I had the pleasure of attending the ExPP e-invoicing Summit in Warsaw earlier this week to present on the EU Late Payment Directive that came into force earlier this year. The lack of awareness of the Directive was no surprise, given that only 9 EU member states met the transposition deadline of 16 March this year and – six months on – I understand Belgium and Germany have still not done so.

 

The Directive is intended to drive a change in culture encouraging organisations to pay promptly and to discourage them from looking to demand excessive payment terms. I’ve expressed previously my view that it is unlikely to have the desired effect because the 2000 Directive had little impact and the new one isn’t that different, and because it tends to benefit organisations who take legal action and recover additional sums on top of the original debt. That’s all well and good but it comes after the event and is little comfort to a small business that’s failed due to a cashflow crisis when what it needed was the original invoices settled on time.

 

Fundamentally, small businesses tend not to know about the legislation, those that know about it aren’t sure how to use it, and those that know how to use it are reluctant to do so for fear of upsetting their customer. Nevertheless, as a tool in the armoury against late payment it has its place and it contains some measures that may yet prove to be of real benefit. That’s for another day though.

So what’s the connection between late payment and e-invoicing? I often preach about the need for small businesses to get the basics right, and the basics include invoicing promptly and correctly. One of the benefits of e-invoicing is that the system can instil a level of discipline into the process such that the correct fields are populated, and it is submitted in a format fit for processing. Also, many systems will provide confirmation of receipt and allow the supplier to monitor process through the payment system and have visibility of when funds can be expected.

 

I sometimes hear criticism when a large organisation issues an edict to its supplier base insisting that it adopts a particular system for submission of invoices. It’s accused of arrogance and abusing its power by forcing small suppliers to adopt a system they might prefer not to. Possibly so but, given that inaccurate and late invoicing is one of the biggest obstacles to getting prompt payment, let’s not dismiss the benefits out of hand.

 

Seems to me there are two sides to every argument!