Weekly Blog by Philip King, CEO of the ICM - 'Falling on deaf ears'

I was interested to see the ICAEW (Institute of Chartered Accountants in England & Wales) quoted by James Hurley in the Telegraph last weekend making the same point the ICM had made in its submission to a government consultation in March this year. The consultation related to the implementation of 'Simpler Financial Reporting for Micro-Entities'. The Telegraph article is here and the changes include a reduction in the amount of information filed with Companies House and the opportunity to mix two different types of accounting – the traditional ‘accruals’ approach and so-called ‘cash accounting’.

 

The government claims that the measures will reduce red tape for small businesses making it easier for them to do business. We believe, however, that it will reduce the availability of credit and stifle the economy rather than the claimed positive alternative. Our argument focuses on four key issues. Firstly, to abridge or abbreviate accounts – or indeed any document – you first need to have the full version to work from. Filing less information does not, therefore, reduce the preparation time, indeed if anything it will increase it. Secondly, the presentation of prepayments and accrued income, and accruals and deferred income is vital to understanding the true financial position of a business and to being certain that it is solvent.

 

Thirdly, the absence of reported information will encourage suppliers to simply refuse requests for trade credit rather than go to the trouble of seeking more detailed information from the potential customer, particularly when the amounts involved are small. It is these modest transactions that accumulate into real economic activity and potential growth. Our final argument is that by categorising a business that turns over £440,000 and employs ten people in the same way as a genuine micro-business that might trade solely on a cash basis is ludicrous. What is worse is that the turnover and net assets limits have been substantially increased since the original discussion paper was published in August 2011.

 

Another example of unintended consequences resulting from a failure to listen adequately to the voices of those who live in the real world, I fear.

 

 

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
 

Weekly Blog by Philip King, CEO of the ICM - 'Be careful what you wish for'

In a Financial Times survey of 83 economists (including 11 former members of the Bank of England's Monetary Policy Committee) earlier this week there was a consensus, by a majority of three to one, that the economic outlook in 2012 would deteriorate. It also showed that almost all of those expressing an opinion said the UK outlook would be much worse if the Euro collapsed. I can't say I'm surprised by the findings - I think we've all known for a while that this year is going to be tough and little better - if at all - than 2011.

I quoted Richard Tyler of the Telegraph in my blog on 1 December saying that we should all commit not to say Britain would have another recession on the basis that these things can become self-fulfilling. I'm not sure what impact our words have but I do know something of the positive impact credit professionals can have on their businesses and that is something we certainly should be talking about.

2012 is the year when we, as credit professionals, need to stand up and be counted. We need to make sure that our peers, colleagues, and Boards know and understand the contribution we can - and do - make. When a potential order is difficult to accept, we can engineer payment terms and security to make the unacceptable acceptable. When a coveted order is almost out of reach, payment terms used cleverly can make the unattainable attainable. When a situation with a debtor is looking like it could go horribly wrong, careful management and close contact can make the potentially irrecoverable recoverable.

Whatever sector and industry we work in, and whatever our role, we need to show our professionalism, be proud of our profession, and raise awareness of the significance of our contribution. Two practical steps we might take: firstly, calculate the cash-flow value of one day's sales to our businesses so we can talk about our contribution in terms of hard cash rather than the reduction of one day in DSO (the former is much more meaningful to the rest of the business). Secondly, we can show we are professionals and belong to an organisation representing our profession by wearing the new ICM badge. If you haven't got yours yet, simply send an email to members@icm.org.uk quoting your correct email address and saying how many people currently work in your credit department.

I'm not a great believer in New Year's resolutions but I do passionately believe in setting goals, and showing commitment to them by monitoring progress. For 2012, be proud of your professionalism, stand up and be counted, and don't be afraid to demonstrate your value.

Weekly Blog by Philip King, CEO of the ICM - 'Keep calm and carry on'

Not much good news from George Osborne yesterday then: six more years of austerity, even more public sector jobs to go, falling household disposable incomes, earnings growing slower than inflation until 2014, only 0.7 percent growth in the economy for the whole of next year, and potentially even worse if the Eurozone can't sort itself out. And I'm writing this in a London coffee bar with hoards of police outside in anticipation of a planned march and the biggest strike action for years.

Yet despite there being plenty of reasons to be depressed there was a moment that tickled me during the Chancellor's statement in the House yesterday when the Speaker stopped him mid-stream and said: "The House needs to calm down; one Honourable Member has probably already shouted enough for one day"! The antics of our politicians never cease to amaze me with behaviour that you'd see nowhere else, except perhaps a playground!

So what can we do about it and is bemoaning our lot going to improve things? I think not. I was struck by a tweet by Richard Tyler, Enterprise Editor at the Telegraph. Richard and I don't always agree but I couldn't argue with the sentiment he expressed when he suggested - in response to the expected grim statements in the House and the OECD saying Britain may have another recession - that we should all decide 'not to say it and it won't become true'.

We're surrounded by economists forecasting gloom; most of our businesses are probably struggling, and yet if we keep reminding ourselves how bad things are, we're in danger of talking ourselves into a depressing vortex.

As credit professionals we make a valuable contribution to our businesses in maximising cash-flow and mitigating risk. It's time for us to raise our professionalism further by actively looking for opportunities that the sales team can exploit, by finding ways of doing business that we might otherwise have to reject, and by being seen as the bright corner of the organisation where people can think - and act - in a more positive light.

Weekly Blog by Philip King, CEO of the ICM - ' Smoke and mirrors'

The SME Finance Monitor has at last been published with the sub-title: 'To what extent do SMEs have issues accessing bank finance?'. This report, which will be undertaken quarterly, is said to be the largest and most detailed study of SME's views of bank finance ever undertaken in the UK. It stems from the Business Finance Taskforce, comprising the BBA, Barclays, HSBC, Lloyds, RBS and Santander. It is independent and the banks have no editorial control.

The report was on the agenda of the BIS Small Business Economic Forum that I attended on Monday, and which was chaired by Mark Prisk. Mike Young, the independent chair of the Survey Steering Group gave us a fascinating insight. What has been even more fascinating, however, is the variety of interpretations and responses since its publication.

The BBA said that: "most businesses are able to get the credit they need." The Labour party was quoted as saying that: "it showed that a significant minority of small businesses seeking loans are failing to get the credit they seek." Richard Tyler, from The Daily Telegraph, said: "that banks are much more selective about which firms they back and are unlikely to change their minds."

All of these are factual and - in a week when the integrity of newspapers is under scrutiny - I am not suggesting that there is anything misleading. However, few will read the full 126 page report (available here: http://www.bdrc.co.uk/business-issues/sme-finance-monitor/) so one's understanding of the report will be heavily influenced by the headlines they read.

The truth, of course, is that this is not a simple issue. Mike says in his introduction: "This report does not provide quick and easy answers to the claims and counter-claims swirling around in the debate about SMEs and banks. That is because it is an extremely complex issue, incaple of easy summary into 'guilty' or 'not guilty'. So, the report eschews glib answers and focuses on bringing out the evidence. It is for others to draw conclusions from it." The conclusions drawn by journalists and politicians will steer our thinking too, I suspect.

The one report I really liked though was in the Telegraphs piece on Tuesday quoting Manos Schizas, a senior policy advisor at the Association of Certified Accountants, who I know well and have worked with a number of times recently. It highlighted one key message of the report: "that it is vital for firms to produce accurate information." Businesses with a low external risk rating were far more likely to be offered an overdraft (93%) or loan (81%), than those with a worse than average risk rating where the 'offered what they wanted' category percentage was only 61% and 41% respectively. No surprise here and you will indulge me while I once again bang on about the 'information' debate.

In many cases, the categorisation as 'worse than average risk' will not be because the business's numbers are bad but because there aren't any numbers to go by at all!. Information facilitates the flow of credit and the current proposals to exempt micro businesses from filing accounts will simply make things worse, not better. Our petition on this subject is still open at http://bit.ly/mliWbY and I urge you to add your name to the growing list of signatories. This isn't just about credit professionals wanting more information available from Companies House or credit reference agencies so they can make better decisions more easily; it's also about helping the economy back on to its feet.



http://www.icm.org.uk/

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 - 'One economist agrees with me!'

An SME 'Access to Finance Research Report' published recently by the Institute of Chartered Accountants in England & Wales (ICAEW) held little in the way of surprises either in its findings or its recommendations. But it was nonetheless interesting.

One of the recommendations that particularly struck a chord with me, for example, was that 'SMEs need to display good financial management'. This is especially pertinent given the work that the Institute of Credit Management has been doing as part of the Doing Business Together initiative http://www.doingbusinesstogether.org/ and the need for greater transparency and clarity from all sides.

Whilst the report suggested that banks needed to do more to improve their relationship with the SME sector, it also concluded: '...well-managed, viable businesses with good track records have been able to obtain the finance they require........'. Such a statement will come as no surprise to those banks supplying the finance or credit professionals providing the trade credit!

I spent one afternoon this week with Roger Martin-Fagg, an economist, listening to his outlook for 2011 and beyond. Roger talks a great deal of sense and can support his arguments well. I was particularly pleased to find an economist who agrees with me that we're going to see a real surge in corporate insolvencies in the months ahead. I've been starting to feel I'm in a minority of one recently but perhaps not, after all!

His views on the difference between 'demand-pull' and 'cost-push' inflation are interesting too; we've got the latter in the UK and - for that reason - raising interest rates alone will not solve the problem. We watch with interest to see what happens next.

Feedback, positive or negative always welcome - use the response form or e-mail me at ceo@icm.org.uk.

Weekly Blog by Philip King, CEO of the ICM - Spot the stars

It has been a busy week that started with the inaugural meeting of the Small Business Economic Forum formed by the new Small Business Minister Mark Prisk. The forum brought together banks and business representatives, among them the Institute of Credit Management, with a remit to 'share their views with Ministers on enterprise issues, in particular economic issues facing small firms'.

What we learned from the first forum is that there is a continuing divide between banks' and business organisations' perceptions as regards to what extent the banks are lending. That, in itself, was not a surprise, but perhaps more of a surprise was the lack of any sign of a solution. In short, it is an issue that is unlikely to go away.

Whether the forum will be successful or not, I do not know. We can only do our best to ensure that it is. Certainly Mr Prisk is of the view that the forum should produce actions, not just words, and that is encouraging. It was good to be invited and welcomed by the new Coalition, and a good opportunity to share views across a wide spectrum of organisations. It was encouraging too to see the engagement of the Business Secretary Vince Cable who joined the meeting in the latter stages to lend his support. http://bit.ly/c3umbH

As I write, I have just finished listening to the statement by George Osborne regarding the Comprehensive Spending Review (CSR). It was a good, if rare, opportunity to listen to a whole speech. It went on for more than an hour and it was hard to get too much detail and that is a pity, for it is in the detail that the devil will be.

Little he said was totally unexpected: 490,000 predicted public sector job losses were in line with predictions, and the impact of people losing jobs, or jobs left vacant, and people entering the market as self-employed will be huge. My worry - and one that I expressed at the Equifax/RBS Exchange Day in London, is that too many start-ups fail to get the basics right. Too many of them are trying to sell the wrong product, or are in the wrong place, or both, and the cuts will produce a large number of people who think they can use their redundancy cheque as a means to fulfill a long-held dream. Sadly, for many, the dream will turn into a nightmare and credit professionals are going to have the challenge of spotting the stars and avoiding the dangers.

For more information about the Institute of Credit Management visit http://www.icm.org.uk/ or follow ICM on Twitter http://www.twitter.com/icmorg.

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