Weekly Blog by Philip King, CEO of the ICM - 'Setting the agenda for credit management'

Last week we saw late payment and the Prompt Payment Code, hosted by the ICM for BIS, rise rapidly up the political agenda.  Business Minister Michael Fallon wrote to the Chief Executives of all FTSE100 and 250 companies that have not signed up to the Prompt Payment Code, urging them to do so and advising that he plans to publicly name those who don't.

 

Then, last Thursday, there was a debate in the House of Commons on 'Stimulating growth through better use of the Prompt Payment Code' where the impact of late payment was discussed in detail.  The ICM's press release following the debate can be found here.

 

This recent activity coupled with the implementation of the revised EU Late Payment Directive by March 2013 means that credit management, as one of the most effective ways to avoid and deal with late payment, is also firmly on the agenda.  Credit management is key to ensuring healthy cashflow and there have now been over 370,000 downloads of our Managing Cashflow Guides aimed at helping small businesses to get the basics right.

 

Let's make sure we make the most of this opportunity to demonstrate and promote the value that credit professionals bring to their businesses and ultimately to the economy as a whole.  Now is the time to stand up and be counted, be noticed, and be proud.

Weekly Blog by Philip King, CEO of the ICM - 'Late Payment thinking that is back to front'

I spoke at a conference organised by the AFDCC (the French equivalent of the ICM) last Friday in Paris. It was a good event held in a very impressive venue and about 150 delegates assembled to hear about and debate, amongst other things, the new EU Directive on Late Payment. One of the keynote speakers was Barbara Weiler MEP, an architect and key driver of the new Directive. Her passion for the benefits on business of improving payment terms is not in doubt and her energy has clearly been instrumental in getting the Directive adopted.

The recent survey of ICM members conducted by Equifax showed that 65% of respondents believe the Government should do more to protect small businesses from the negative impact of late payments, and there can be no argument that the existing legislation has not worked in the way intended. Businesses, and particularly small ones, are either ignorant of the law, don't know how to use it, or are afraid to do so for fear of losing a customer. There are exceptions of course; I know credit professionals who use it very successfully and mitigate the cost of financing extended credit by so doing, and I know others who generate a late payment 'charges and interest' invoice to accompany the first collection letter very effectively.

Primarily, the real financial benefit comes when legal action is taken and the late payment charges and interest are added to the principal debt and can significantly increase the amount recovered. But that was never the point of legislation - it wasn't intended to make for better recovery at the end of the food chain; the idea was to improve payment behaviour from the start!

Unfortunately, politicians often seem to miss the point of what happens in the real business world and this is no exception. The Directive states that, if payment terms are not agreed in the contract, then the assumed terms shall be 30 days and - if payment terms are set out in the contract - they cannot be 'grossly unfair'. The definition of 'grossly unfair' is unclear but, in any event, how many small companies would be willing or able to take legal action to argue the case and get remedy? The inclusion of a clause allowing a supplier to recover reasonable actual debt recovery costs (in addition to interest) rather than just the current standard late payment charge is positive but is again a back-end benefit, not a front-end incentive to change payment behaviour.

For me, the most encouraging thing in the whole conference was Barbara Weiler saying that the Directive is as much about changing the culture of payment through soft issues as it is about introducing hard legislative measures. The UK has been lauded for its Prompt Payment Code (administered for BIS by the ICM of course) and educational activity like our Managing Cashflow Guides are also recognised as leading the field. As credit professionals we have more opportunity than most - and should use it - to influence that change of culture by adopting credit management best practice. We can and should be more powerful and effective than a Directive and if the Directive gets more attention and visibility for the importance of cash-flow management and the value we add to businesses, then - for that reason alone - I welcome it.

The Prompt Payment Code

Institute of Credit Management Press Releases

Weekly Blog by Philip King, CEO of the ICM - 'Finding common cause...'

I said in my blog last week that I would be meeting a couple of MPs to discuss late payment. Since then, I've met with Debbie Abrahams, Labour MP for Oldham East and Saddleworth and Anne Marie Morris, Conservative MP for Newton Abbot. In addition, I attended the BIS Small Business Economic Forum chaired by Mark Prisk and have been talking to the BIS team about some future activity around late payment. I have also been starting to prepare for a presentation I'm giving to the AFDCC (the French equivalent of the ICM) in Paris next month about the new EU Late Payment Directive. It's fair to say that late payment has certainly been at the forefront of my mind in recent weeks!

Debbie Abrahams and Anne Marie Morris are both articulate and passionate about supporting small businesses and helping to protect them from the impact of late payment. Coming from different sides of the chamber, it is no surprise that their views on what can and should be done differ slightly but they certainly have common objectives. I was encouraged by the fact that both recognised the need for a change of culture across the whole business community, acknowledged that payment terms are part of the wider contractual and commercial negotiations between businesses, agreed that more emphasis should be placed on the positive aspects of prompt payment (see www.promptpaymentcode.org.uk), and endorsed the need for businesses to be educated in the basics of credit management that can help them to assist themselves.

There is work to be done and I will continue our dialogue, exploring various ideas and initiatives. This, together with the imminent BIS activity and the continuing demand for the ICM/BIS Managing Cashflow Guides (of which there have now been over a quarter of a million downloads), gives me grounds for optimism.

I'll return to the EU late payment directive on another occasion but, before then, I suspect I'll be addressing the new - and just published - OFT Debt Collection Guidance which I'll be reading in detail over the next day or three.

Weekly Blog by Philip King, CEO of the ICM - 'The majority are micro'

Ed Davey issued a discussion paper last week - "simpler reporting for the smallest businesses" and I make no apology for using my blog this week to readdress some of the issues raised in the press release we issued immediately after the discussion paper was received.

The paper considers whether micro businesses should be allowed to file a simplified trading statement, statement of position, and annual return in place of the current profit and loss account, balance sheet, and annual return. So far so good; making reporting easier will surely reduce the burden on smaller businesses.

But wait. What has the EU defined as a micro business? Micro businesses are those who do not exceed two of the following criteria; a net turnover of Euro 500,000 (£440,000) a balance sheet of Euro 250,000 (£220,000), and an average of ten employees during the financial year. 60% of companies registered at Companies House meet these criteria so it isn't a 'small minority' by any measure.

The paper raises a number of interesting questions and I am looking forward to receiving feedback from ICM members when we launch a survey seeking their views. The move to a trading statement prepared on a cash accounting basis which would remove the need to account for, among other things, stock, changes in working capital, and changes in the value of fixed assets raises a number of questions in my mind (although I'm always prepared to admit that I might be out of date).

My biggest gripe, however, is with the definition of users of accounts which, among the six categories, doesn't even mention creditors except under the quaint term of "other trading counter parties". It is this that suggests to me a complete lack of understanding of the role of credit. A business turning over £440,000 is typically going to make sizeable purchases and, for the majority, these will be on credit terms. Credit professionals provide by far the biggest proportion of cash flow funding to business and, to make good decisions, they need good information.

The discussion paper and survey will be with you shortly; please look out for it and give us your feedback. We need to make sure our ability to support economic recovery is not undermined.

Weekly Blog by Philip King, CEO of the ICM - 'Save us from madness'

Last Friday, Vince Cable announced that small firms will no longer have to produce independently audited accounts in a measure that he believes will save 42,000 businesses £40 million per year. I've always respected Vince Cable and have no doubt of his commitment to helping small business, but such a move demonstrates a naivety that verges on madness.

I agree with him when he says that 'one of the barriers to growth is the burden of regulation...it takes up time and stops busines growing and that means our economy does not grow'. That is why the ICM has indicated its support for the Daily Telegraph's 'red tape campaign'.

But please can we understand that producing accounts is not 'administration' and neither is it unnecessary red tape. Without numbers, a business cannot know how it's doing, it cannot manage its cashflow and it is far more likely to fail; without audited numbers that can be trusted, banks, creditors and financiers will not support the business and again it is far more likely to fail; and without audited numbers and the ability to access finance, the economy will not grow. Quite the opposite; it will shrink.

The Government is explaining its position by telling us that the rules for small business in respect to auditing and accounts are stricter in the UK than is required by EU law. They tell us also that for micro businesses, those with less than 10 employees, they will push for exemptions to remove the requirement to produce two sets of accounts.

And that's not all. They intend 'helping' medium sized businesses by pushing for EU restrictions to be lifted so that they no longer need their accounts independently audited and will look at relaxing the audit and accounts rules for subsidiaries.

The ICM is going to lobby vigorously against these steps and against the Government's insistence on delivering mixed messages to business. Credit fuels business. Access to credit comes from greater access to information, not less. Why is such a simple statement of fact so apparently difficult for the Government to understand?

Weekly Blog by Philip King, CEO of the ICM - 'Consistency, fairness and madness'

It is always interesting to see what comes out of the EU and compare ourselves with our fellow 'Europeans'. I was particularly intrigued, therefore, by a recent article in The Guardian http://bit.ly/i5tB9H that highlighted how the Irish are undertaking what they call 'bankruptcy tourism' - in short, taking advantage of the bankruptcy process in the UK as a better way out for entrepreneurs crushed by debt from the property boom.

Waiting 12 months to be declared bankrupt and start again is a considerably more attractive proposition than waiting the likely 12 years in Ireland, and so it set me thinking: isn't it about time that the EU looked more actively into bankruptcy and insolvency across Europe and introduced a modicum of consistency and uniformity among Member states? I am sure it would be well received, especially by creditors.

And while we are talking about the EU, I was similarly intrigued and bemused by The European Court of Justice ruling on sex equality in insurance that will mean that insurance companies are not going to be able to price according to the calculated risk of those wishing to be insured.

I share the frustration of parents who have seen their sons penalised by excessive insurance charges because they fall into the high risk young male driver bracket, but the pricing of insurance and premium rates are based on calculated odds. If we stop this, then what next?

If it is unfair to use claims experience to price insurance, then isn't it also unfair to use credit scoring models predicated on calculated experience? What an interesting conundrum that would be.

I may be becoming too old and cynical but the absence of common sense from EU decisions, of which the above are just two recent examples, drives me to despair!

Weekly Blog by Philip King, CEO of the ICM - 'Disagreements and mixed messages'

As I mentioned last week, the momentum over the Doing Business Together initiative is gathering pace. The Business Secretary, Vince Cable, has clearly thrown his support behind DBT and the meeting last week in Richmond brought some real heavyweights to the table from the world of business and credit. But there are some issues.

There are, for example, some mixed messages coming out, especially from the politicians. On the one hand, the Government support EU moves to cut red tape for SMEs by reducing their obligations over the detail of financial reporting, while on the other they believe that financial data is essential for granting credit and therefore facilitiating growth.

Businesses need to be educated about the importance of producing, using and sharing information: they need to produce accounts, because in doing so they will be able to manage their businesses better; they need to use the information they have, and so identify how and where they can free up cash in their business; and they need to share that information to access finance or negotiate better terms with their suppliers.

I was also invited this week to the ABFA (Asset Based Finance Association) Conference, sharing the platform with my colleagues from the FSB and FPB among others in an event chaired by Fiona Bruce. The conference created a vigorous debate about late payment legislation. I disagreed entirely with the FSB position: legislation really won't change anything even though we might all wish it would.

Finally, I note an interesting thread on the ICM Bulletin Board this week about alternative approaches to cash collection. It touched on one of my soapbox themes: good credit management adds value across the entire business - creating profitable sales, improving the quality of the organisation at all levels, retaining customers AND maintaining vital cashflow; knowing - and understanding - our customers is a vital element if we are going to be successful and if we're going to make the contribution to our businesses that we can, and should!

http://twitter.com/philipkingicm http://twitter.com/icmorg

Weekly Blog by Philip King, CEO of the ICM - 'EU directives, Eire misery, and meaningless forecasting'

Having recently returned from a meeting of FECMA (the Federation of European Credit Management Associations) in Paris, it's interesting, as always, to catch up with my colleagues and share their experiences. There was much animated conversation about the new EU Late Payment Legislation, particularly with French and Spanish delegates who now have real experience of domestic legislation that sets a statutory limit on payment terms of 30 days. I accept this is anecdotal rather than hard scientific evidence, but their views are crystal clear: the legislation hasn't made the slightest difference.

They found that businesses experiencing late payment are still reluctant to take action against their customers for fear of upsetting them and losing future contracts. There's a lack of real knowledge about how the legislation should be applied, and businesses that want to exploit their suppliers will find a way of doing so, legislation or not!

The legislation will still be some time coming; there are nearly two years before the Directive has to be implemented by member states. We need to use that period to explore long and hard how we might further improve payment and business culture across the UK. I have a meeting with Mark Prisk, Minister for Business & Enterprise, next month and this is one of the subjects that I plan to raise. I've already highlighted the failings of the Directive, but let's see if some good can come of it.

Meanwhile I note that the latest Bank of England Inflation Report, published under the guidance of the Monetary Policy Committee, has some almost amusing words in its overview which ends: "...the chances of inflation being either above or below the target by the end of the forecast period are judged to be roughly equal."

I understand the complexities involved in putting such reports together, and the challenges in making accurate forecasts. But am I alone in thinking that experts should at least have a view? This just feels like a classic case of 'hedging your bets' or 'sitting on the fence' to me!

And finally, over to Ireland - metaphorically, not physically! What a sorry story, and a worrying one too for the people who live there, the businesses that trade there, and the businesses that trade with it.

I've been saying consistently to anyone who will listen that businesses in the UK are underestimating the negative impact of our public spending cuts. But I fear the pain we're going to feel is incomparable to the misery that our neighbours now face.

Weekly Blog by Philip King, CEO of the ICM - The power of belonging

At the start of the week I hosted and chaired the latest ICM Think Tank. It was our most well attended to date, with some 25 senior representatives from all parts of the credit industry coming together to share their thoughts and views and join in a lively debate around the key issues of the day.

Among the delegates was Mike Chambers, Managing Director of Bacs, and it was most interesting to hear his views around the proposed withdrawal of cheques by 2018. The next two years, it would seem, will tell us a great deal about the preparedness of the banks, businesses and the consumer in migrating to alternative payment methods.

The issue of late payment was also discussed, particularly in light of new EU legislation that I commented on in an earlier blog, but perhaps the main topic of discussion was around the provision of data, and specifically the provision of debtors' payment data as a prerequisite for future adequate and meaningful risk assessment. It is inherent within our business culture, it would appear, to jealously guard what financial data we possess, even if in sharing that data we might all ultimately benefit.

The Think Tank also provided the forum for discussing the preliminary findings of our new Credit Managers' Index (CMI). Although it is still very early days, there are some interesting trends emerging, and work is now underway in preparing for the next survey in December to enable the first comparisions - and therefore the first 'index' - to be drawn.

In what has been a busy week, I was delighted to have been actively engaged in CCR-i which seemed to be the most successful yet. Our commitment as the ICM is to further build CCR-i to become the foremost national event for the credit industry, and it was most encouraging to see so many credit professionals - and ICM Members in particular - taking time out of their busy schedules to attend.

On the day, I chaired the Commercial Credit Strategy stream with various presentations from credit professionals sharing their own 'front-line' experience as opposed to theory. It gave delegates much food for thought in terms of reinforcing their own current practices and/or learning of new techniques to deploy.

Sharing with credit professionals from across the industry, and a range of sectors, with different perspectives gave those present a real sense of the power of belonging to - and engaging with - the wider community through organisations like the ICM http://www.icm.org.uk.

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