Weekly Blog by Philip King, CEO of the ICM - 'Changing the mindset of start-ups'

I've had some interesting meetings this week with BIS officials and Ministers, and other organisations, talking about late payment. No doubt you'll have seen David Cameron's announcement in October that a consultation was going to be launched looking at the issue, and I mentioned it in this blog column a few weeks ago.

One of the meetings was a round table involving a large number of organisations looking for practical steps that might help SMEs to manage their cashflow better. There's no doubt that the required change in culture that I often refer to is needed throughout the supply chain. Big businesses need to take a responsible approach in dealing with their suppliers, and smaller businesses need to apply basic good credit management principles.

Therein though lies the challenge. For many micro businesses, cashflow only becomes important when it runs short, and that's no surprise. If I'm trying to start a business, I'm bound to be more worried about finding customers and delivering my service or product than I am about such things as agreeing payment terms, invoicing accurately and promptly, and chasing unpaid amounts.

But this is what needs to change - we need to make the mindset of start-up businesses one that recognises the importance of cash from day one, that applies the basic principles that credit professionals understand so well. Unless that happens, too many businesses will never grow beyond the micro stage and too many businesses will fail. So what's the answer? I am not sure I know - I wish I did - but I'm glad to be engaged in the debate and to be working with others in looking for solutions.

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 - '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 - 'Growing Responsibility'

It's the time of year - just pre-holiday season - when we normally expect to see a flurry of papers and consultations being issued by government to keep us occupied over the summer. This year is no exception and the last week has seen a bulging inbox.

To name but a few BIS has issued a call for views on its Corporate Responsibility paper, and produced a discussion paper entitled 'Transparency & Trust', and the Insolvency Service has published the report from Elaine Kempson's review into Insolvency Practitioner Fees, the terms of reference for the long-heralded review into Pre-pack Administrations, and its Annual Report for 2012-13.

The Institute will of course be considering these and submitting responses in due course but, having spent several hours over the last few days scanning the contents of papers, the longest of which is 89 pages, I do have a few initial thoughts.

The BIS Corporate Responsibility paper is looking primarily at what has more traditionally been called Corporate Social Responsibility (CSR). It seeks to define exactly what CSR is and how it can be encouraged, developed and reported on. One section looks at supply chain management
and I hope one of the issues identified is that of prompt payment and treating suppliers fairly. Given the impact of late payment on suppliers and, as a consequence, the wider economy this seems a very obvious way for businesses to be seen as acting responsibly. Conversely, making life difficult for suppliers and deliberately exploiting them is nothing short of irresponsible.

The BIS Transparency and Trust discussion paper (or perhaps tome is a better descriptor!)  covers a broad range of issues focusing on two primary themes: enhancing the transparency of UK company ownership, and increasing trust in UK business. The latter theme embraces a number of specific areas but includes insolvency through suggested changes to the disqualification of directors regime and the introduction of financial redress for creditors where directors have acted fraudulently or recklessly. I'm also encouraged by the suggestion of education for directors. I've had a long-held view that the ability for people to gain the privilege of limited liability without putting up any capital nor having to demonstrate any understanding of their responsibilities and obligations is unhelpful and leads to wide-ranging issues. The ICM's press release welcoming the discussion can be found here: http://www.icm.org.uk/statement-following-publication-of- transparency-and-trust/

The Transparency & Trust paper which can be found here also refers to the imminent review of pre-packs and the report from the Review into Insolvency Practitioner Fees and we'll await the Insolvency Service's response in due course with interest.

I'm encouraged that the government is looking at these areas. The provision of credit across all sectors always involves trust so the title of this paper, 'Transparency & Trust', puts it squarely in our space and I look forward to hearing the views of ICM members when we go out for their
input and views shortly.

Weekly Blog by Philip King, CEO of the ICM - 'Unearthing a hidden gem'

The government published its Information Economy Strategy last week (it can be found here: https://www.gov.uk/government/publications/information-economy-strategy).  The 57 pages set out the vision for a "thriving UK information economy enhancing our national competitiveness with, among other things, a strong, innovative, information sector exporting UK excellence to the world; UK businesses......confidently using technology, able to trade online, seizing technological opportunities and increasing revenues in domestic and international markets".  The intent and programme are ambitious yet vital if we are going to stay at the forefront of technological change and make the most of the opportunities that change will present in the years ahead.  I count myself among those who remember computer printouts being introduced as working tools in the late 1970s and I'm still struggling to grasp the concept of 3D printing as a form of manufacture so, like you, I've experienced the huge change over the past few years.  Indeed, it's not so long ago that the idea of me writing these words on an iPad sat in a car would have seemed the stuff of science fiction!

Anyway, back to the government report which has a real gem hidden away on page 23. It says government wants to make it easier for suppliers by encouraging the use of electronic invoicing.  Its aim is for central government to use electronic invoicing for all transactions.  While not mandating suppliers at this stage, it will look at ways to spread best practice and will track progress.  It goes on to say that, to realise the full benefits of e-invoicing, it is important that systems are easy to install and use, and the pricing is flexible enough to suit the needs of diverse businesses.

The ICM is increasingly engaging with the UK National e-Invoicing Forum which pulls together a number of e-invoicing providers, business organisations, and others with an interest in promoting the use of e-invoicing.  One of the interesting outputs from the Prompt Payment Code (hosted and administered for BIS by the ICM) is that the majority of complaints against signatories end up identifying administrative issues in either the raising and submission of the invoice, or the authorisation process at the recipient's end. I regularly talk to SMEs, and particularly micro-businesses, who still appear to fail to see the importance of raising invoices promptly and in line with the requirements of the paying organisation.  It can be a pain to jump through hoops to meet exacting demands of a customer but that pain fades into insignificance when set against the pain of running out of cash!

Implementing e-invoicing systems may seem daunting but, once in place, the whole process can become seamless allowing payment to hit on the agreed and expected day without further intervention.  The report is right in identifying that systems must be easy to install and use, and it's encouraging that providers have committed to look at ways to improve interoperability and accessibility.  Anything that helps add to the certainty of payment is good for business and will help support economic growth through improved cashflow.  The Prompt Payment Code (www.promptpaymentcode.co.uk) drives better payment behaviour.  Good credit management practice is vital, and e-invoicing too can play its part.  I'm looking forward to working with the UKNEF and the e-invoicing providers in the months ahead as their products evolve and awareness is raised.

Weekly Blog by Philip King, CEO of the ICM - 'Going for growth'

Lord Young published his Growing Your Business - A report on Growing Micro Businesses on Monday and it's a good read with some insightful views. I've spent some time with Lord Young as part of my involvement on the board of the Start-Up Loans Company, and I never cease to be amazed at his enthusiasm and energy. I'd love to think I will be so sprightly when I am 81! 

 

The report can be found at the link above and three things strike me in particular. Firstly, the proposals regarding public sector procurement starting on page 19. Whatever government might say, or intend, the reality is that many small businesses find procuring for public sector contracts bureaucratic and daunting. Their perception is that large organisations will be favoured in the process and - whether they're right or wrong - we all know that perception is, for them, reality. The removal of the PQQ system for contracts below €200,000 makes very good sense, as does the 'single passport' proposal allowing pre-qualification data to be entered once and then - after approval by one authority - apply to all bids across multiple authorities.

 

Secondly, the recognition that "Few small firms understand the importance of cash flow particularly when applying for a first bank loan." I guess the fact that the ICM/BIS Managing Cashflow Guides have been downloaded more than 450,000 times since they were launched in 2008 and are seeing regular and substantial monthly increases reinforces this point.

 

Thirdly, the recommendation that the upper age restriction be removed from the Start-Up Loans scheme. Originally set at 18-24, then in January changed to 18-30, this latest suggestion would allow anyone to benefit from what has been a hugely successful initiative. Almost 4,000 businesses have been started, receiving loans totalling nearly £20m, and the creation of a private company to manage the scheme is a radical and

 

innovative alternative to previous government propositions. The businesses receiving funding, support and mentoring have the chance of a real kick-start towards their entrepreneurial vision and aspirations. At the start of 2012, micro businesses (0-9 employees) accounted for 32% of private sector employment and 20% of private sector turnover. Growing the contribution of such businesses can only be good news for the economy and add to the increased confidence that is starting to emerge.

 

The report's 54 pages contain much more, including the proposal for Growth Vouchers encouraging businesses to obtain support and advice, and just as I am proud to have been engaged on the Start-Up Loans Company Board since its inception, I am also proud that the ICM is listed as one of the organisations with which Lord Young engaged in the writing of the report.

 

Finally, it would be remiss of me not to mention the fact that the Institute of Credit Management won another PR award last week. The press release announcing the win can be found here and I'm delighted at the recognition of what we, together with our PR agency Gravity London, have achieved in raising the profile of professional credit managers and the vital role they play in supporting the economic recovery.

 

Next week, I'll be standing down from my blog-writing responsibility for a week and we'll be publishing a guest blog by Professor Russel Griggs OBE who is Lead reviewer of the banks appeals processes and Chair of the Scottish Government’s Regulatory Review Group ahead of the publication of his second annual report in June.

 

 

Weekly Blog by Philip King, CEO of the ICM -'Directors must take responsibility for their actions'

I received the report from the House of Commons Business, Innovation and Skills Committee on The Insolvency Service (Sixth Report of Session 2012/2013) recently. In more everyday parlance, this was the report from the Select Committee that met last October and heard evidence from the Insolvency Service, R3, the Insolvency Regulatory Bodies and others. One of the comments in our submission has been somewhat over-stated,  and our words used out of context, but I am particularly pleased at the inclusion of another reference which says: 'The Institute of Credit Management summarised the concerns of many of those who submitted evidence to us when they commented: "We would be greatly concerned if the reductions in budget [of the Insolvency Service] resulted in a degradation or reduction of Disqualification Unit activity. We believe any such dilution of activity would send entirely the wrong message to delinquent directors at a time when corporate insolvencies are likely to increase".'

 

In connection with the disqualification of directors, the report points out that 'disqualifications have halved over the last couple of years………whilst the number of directors disqualified each year has remained relatively stable over the past decade (approximately 1,200 a year), the number of cases of misconduct identified by Insolvency Practitioners in the same period has risen from 3,539 to 5,401…..the disqualification rate has fallen from 45% in 2002-03 to just 21% in 2011-12.'

 

It is widely accepted that the UK is one of the easiest countries in which to start a business, and that's good, but business owners need to show some responsibility in return for the 'veil of incorporation' which limited company status affords them. If a company can be formed with £1 issued capital and the directors have no personal liability, there have to be consequences if they are found to be guilty of misconduct that leaves their creditors out of pocket. Insolvency Practitioners are required to submit a return identifying where they believe misconduct to have occurred and they have the right to expect their report to be acted upon. Currently only 20% of reports are taken forward to disqualification and that's not good enough so I'm delighted that the Report recommends 'that the Department provides the Insolvency Service with sufficient, and if necessary, additional funding to disqualify or sanction all directors who have been found guilty of misconduct.'

 

Let's encourage entrepreneurship and initiative but let's not turn a blind eye on sharp practice that leaves suppliers with bad debts and impacts negatively on their business and the wider economy. I happen to believe there should be a minimum amount of issued capital required to form a limited company so that directors and business owners take their responsibility more seriously but I'll save that argument for another day. In the meantime, let's hope the Select Committee's recommendation is fulfilled. It definitely needs to be.

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.

Weekly Blog by Philip King, CEO of the ICM - 'A reason for good cheer'

As we enter the Christmas break, it's good to pause and reflect on the last 12 months.  Our Regional Roadshow programme, for example, has been really successful and it was great to end the year with a superb event at the premises of Schuco in Milton Keynes.  It was an excellent venue with great speakers, and proved to be a fantastic example of the ICM credit community at its best.

 

Looking at our wider activity, we've had some notable success too.  By the end of the 2012 there will have been 125,000 downloads in the year, over 50,000 more than in 2011, and almost 400,000 downloads in total of the Managing Cashflow Guides that were written and launched in 2008.  The Prompt Payment Code (PPC), which we host and administer for BIS, featured in a November House of Commons debate when the ICM received no less than eight mentions, and we've seen a surge in sign-ups in the last few weeks - particularly from large organisations - with signatories now standing at over 1,240.

 

Even more encouraging however is recent research by Experian showing that the PPC has had a positive effect on payment times.  It found that on average those who had signed up to the Code paid five days earlier than those who had not.  Furthermore, there has been a sizeable improvement over the period amongst PPC signatories who now pay 12 days quicker than in December 2008.

 

The Code was launched late on Christmas Eve, 2008 and, while I accept that there is much much more to be done, it's great to see independent evidence that it is has made some progress in changing the culture it was designed to achieve.

 

I'm looking forward to an exciting 2013.  In the meantime, may I wish you a very happy Christmas and a peaceful, prosperous and productive New Year.

 

Weekly Blog by Philip King, CEO of the ICM - 'Making the headlines'

Notwithstanding the Chancellor’s Autumn statement, and the undoubted noise that will follow, I’d instead like to reflect on a couple of reports I've read recently.

 

The first is the SME Finance Monitor (Q3 – 2012) produced for BIS that was published last week. I was struck by a couple of things. Only 46% of SMEs were aware of any of the Business Finance Taskforce initiatives with 22% aware of the Enterprise Finance Guarantee Scheme, 18% aware of the National Loan Guarantee Scheme, and 21% aware of the network of business mentors. Given the amount of publicity and airtime generated during their launch in 2010, these statistics are disappointing.  Even more interesting was the lack of confidence SMEs have in availability of finance.  Overall, only 33% were confident that their bank would agree to their request for finance (the lowest level seen in the six surveys to date), and yet the outcomes are markedly better.  The success rates for renewal applications are c90%, compared to 53% who were confident ahead of the application and, for new applications, the success rates are c56% against a confidence level of 21%.  Both of these aspects show how much more needs to be done in raising awareness.

 

The second is a report written by Duncan Cheatle, who I've met through my involvement on the Board of the Start-Up Loans Company.  Duncan is CEO of Prelude Group and has authored; 'The Unsung Heroes of Business'.  This report tells the story of seven entrepreneurial businesses and analyses their tax accounts.  It shares the views of their owners about taxation, their attitude to it, and their recognition of the value they add to the economy and society through the contributions of their businesses.  The foreword talks about ‘the perpetuated myth that successful business owners are the sole and selfish beneficiaries of the fruits of their business's output’ and delivers the message ‘that we need to do all that we can to encourage and support the relatively small cohort of business innovators who drive value into our economy and make such a significant and mostly overlooked contribution to public finances in the UK.

 

It's a refreshing read at a time when Starbucks, Amazon, Google and others are in the headlines for all the wrong tax reasons.

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.

Philip King, CEO of Institute of Credit Management (ICM) - 'Judge or Jury'

I had the privilege of sitting on the judging panel last week for the SME category of the National Business Awards. It was the first time I've been a judge where the nominees have to present a 'pitch' and it was a fascinating experience. I've always wondered what it felt like to be a dragon in the den, and I guess this is the closest I'll ever get to finding out!

There were 12 entries and we spent a long day listening to a series of presentations from a range of very diverse businesses. It was inspirational hearing from people who have turned an idea into a business that is thriving and, in some cases, hugely successful in a very short space of time.

The common theme, certainly among the front runners, was unbridled energy and enthusiasm and a passion for a business that entrepreneurs saw as 'their baby'. If those qualities could be replicated and reproduced across business, it's hard to believe we'd still be struggling to see the recovery for which we all yearn. So often, the idea was simple and certainly not rocket science. As a judge, I was left thinking why somebody else hadn't thought of it before and wishing I had a more creative mind that could spot what seemed like obvious opportunities once somebody else has pointed them out!

The Start-Up Loans Company in which I'm involved has now started lending and, at the Board Meeting this week, we were hearing examples of young people who are determined to turn an idea into a successful business and - judging by their determination - will do so.

On the political front, we've heard Vince Cable's announcement about the new Government-funded bank to support SMEs. The devil, as always, will be in the detail but I certainly welcome the plan to bring together in one place Government finance support for small and mid-sized businesses. As I've said here recently, the multiplicity and complexity of schemes often results in them almost working against each other so if the new bank helps to simplify and de-clutter the landscape, it can only be a good thing.

It was good to meet Michael Fallon, the new Business Minister, this week and I'm at the Labour and Conservative conferences over the next two weeks. It will be interesting to hear what the parties have to say at this mid-way point of the current Government.

Weekly Blog by Philip King, CEO of the ICM - 'Reading between the lines?'

Last week Vince Cable announced that the Government was tabling the Statutory Instrument to implement the planned changes to accounting thresholds.  The accompanying BIS press release heralded the fact that allowing 36,000 more companies to choose not to have an audit "will help save UK companies millions every year and free them up to expand and grow their business, which ultimately benefits the entire British economy".

 

How frustrating it is to see the Government fail to grasp a fundamental principle of trade credit and business. Suppliers make credit decisions based on the information available to them; the more information, and the more reliable it is, the better will be the quality of the decision.  It follows that, where the information supports it, credit will be more readily available to the business requiring the goods or service.  Most likely, 36,000 companies will now follow the implicit steer from Government and leave potential suppliers struggling to justify the granting of credit.  Will that aid economic growth? I think not!

 

We should remind ourselves what audits do.  Formally, they ensure the accounts represent a true and fair view of the company's financial situation giving suppliers confidence in the status of the business they're being asked to support through the provision of goods or services on credit.  But they do much more besides.  Very often, they highlight errors in the business's accounting system, records or processes, they identify any gaps or omissions that could be attributable to inefficiency or, worse, fraud, and they provide an independent and objective view of the business.  A good auditor can be very useful to a business; I know the ICM's auditor takes a real interest in its business and our discussions go far beyond the accounts and the numbers.

 

Interestingly, only this week, I saw a draft article for a European magazine by a university academic referring to the positive impact of the changes in 2006 that obliged German companies, especially small and medium-sized ones, to disclose financial statements and the resulting increased transparency!

 

I understand the thinking behind the changes and I have no problem for micro-businesses with very low turnover where accounting is cash-based and simple, but we're talking here about businesses with turnover up to £6.5m and 50 employees.  When an error eventually comes to light and the company fails because it's too late to do anything about it, there will be impacts on the business, its suppliers, its employees and the economy.  The suggestion that something that can be so invaluable is an unnecessary regulatory burden is misguided, naive, and unhelpful.

Weekly blog by Philip King, CEO of the ICM - 'Confidence or availability'

The Government Funding for Lending programme has been launched this week. Under the scheme, the Bank of England will lend money at below-market rates to banks who, in return, will have to increase their lending to businesses and households; progress will be monitored and, if they fail to deliver, the interest rate will increase. There have been some interesting comments and opinions expressed including those who say it's just another in a long line of schemes such as the National Loan Guarantee Scheme that this one will, over time, replace to encourage the banks to lend more.

The initiative is creative and good but I have to say I'm with Jonathan Portes, Director of the National Institute of Economic and Social Research, who said on yesterday's Radio 4 Today Programme that making more money available at competitive interest rates is not going to fundamentally address the underlying lack of confidence in the economy. He observed that the scheme will allow businesses who want to borrow to do so more cheaply but it won't encourage the banks to lend more since they will still carry the credit risk. In other words, it will reduce the price of lending rather than increase the volume. What is needed is a boost in confidence to encourage businesses to invest and households to spend more.

Mark Hoban, Financial Secretary to the Treasury, countered that the availability of loans at a lower cost will encourage the bringing forward of projects and spending, and encourage investment that would otherwise not have happened, or at least not happened yet.

We'll see over the coming months but I don't sense any increase in confidence in the many businesses and business owners I speak to. I don't know the answer I'm afraid but it's the level of confidence we need to stimulate; when that happens, the demand problem will take care of itself.

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Weekly Blog by Philip King, CEO of the ICM - 'Watching and learning'

I attended my third Start-Up Loans Company Board Meeting this week, and it was a masterclass.  If you've read James Caan's autobiography, you'll know that he attributes much of his success in the recruitment sector and subsequent businesses to his skill at asking questions, teasing out meaningful responses and, as a result, choosing the right people.

As each director presented an update on what had been achieved in their area of activity since the last board meeting and set out their key challenges, it was fascinating to observe him use questions to unearth underlying themes, and then use further questions to identify the priorities for the month ahead, and commitment to getting them achieved.

It's difficult to pinpoint the specific techniques or words used, hard though I tried since I always like to watch and learn from people I meet.  I guess it's more of an inert talent that just seems to work, and it's amazing to watch in action.

Individuals aside, the progress made in the last 60 days is incredible and the next 60 days are going to be really exciting as Start-Up Loans become available and the scheme fully operational. Watch this space for more details to follow and, in the meantime, I've been reminded of the power of people-watching and learning. I'll keep hoping that some of the positives rub off on me now and again!

To find out more about the Institute of Credit Management visit www.icm.org.uk or follow Twitter Http://www.twitter.com/ICMorg and http://www.twitter.com/philipkingicm

Weekly Blog by Philip King, CEO of the ICM - 'The power of collective action'

I blogged a couple of weeks ago about the impact we can have as individuals and the responsibility that carries with it. Developing that thinking, I've been reminded this week of the collective power of individuals coming together with a collective aim. Winston Churchill is oft quoted as saying: ‘Never doubt that small groups of people can change the world. In fact it’s the only thing that ever has.’

I attended my second board meeting of the Start-up Loans Company this week and James Caan has pulled together a formidable group of people, allocating responsibility for particular aspects of the programme to each director. In four weeks an amazing amount has been achieved both individually and collectively by a group of people who believe in the benefit of what is being delivered and are committed to making it happen. We are at the start of a really exciting journey and I believe the concept and reality of Start-up Loans is going to be a huge success about which I'll no doubt write more in the months ahead.

When I look around the membership of the ICM, I see similar stories every week. A group of people come together as a branch committee, for example, and deliver events for local credit professionals that educate, energise, and motivate them to deliver more as individuals and for their organisations. At ICM HQ, following our restructure in January, I see the team working together with members and other stakeholders to deliver quality events for the wider credit community; in the last couple of weeks alone, I've witnessed this at our Regional Roadshow in Cardiff, the QiCM Best Practice Event at Reading, the Fellows' Lunch and Graduate Reception in London, and the Education Conference in Birmingham.

To close with a further quotation, this time from Aristotle: ‘the whole is more than the sum of its parts’. Working individually and collectively, we can make a real contribution and make a real difference. That's what our credit community is all about.

Weekly Blog by Philip King, CEO of the ICM - 'Measure for measure'

The Government has this week published its response to the BIS Select Committee's report on Debt Management published in March and it makes interesting reading.  The original report contained 23 recommendations and the government responds to each one in turn. The document can be found here and what pleases me is the measured and proportionate nature of the responses.

 

The timetable for the planned review of the regulatory framework, including the transfer of regulatory powers from the OFT to the FCA, is set out with the final transfer expected to take place by April 2014.  Having a clear timetable and plan including expected consultation dates is helpful.  The more interesting aspects, however, relate to payday loans and debt management companies.

On payday loans, the Government refers to the work it has been carrying out with the four main trade associations representing over 90% of the payday loan market to improve consumer protection in their codes of practice.  These improvements together with the OFT’s review investigating levels of compliance with the Consumer Credit Act are, in my view, the right approach before any more stringent measures are considered.  Furthermore, the codes include measures to address the issues of rollover loans, affordability assessment, and continuous payment authority, and the Government has undertaken to review how best to include high-cost credit transactions in credit files.

In summary, close engagement with the trade associations to introduce enhanced consumer protections into their codes of practice and their commitment to publish a common industry-wide Good Practice Customer Charter setting out in a clear, concise and user-friendly format what customers of payday and other short-term loans should expect from their lender is positive and encouraging.  One can never condone poor practice but I believe payday loans have their place in certain circumstances and meet a particular need.

With regard to Debt Management companies, the Government is working with stakeholders to develop a Protocol of best practice for debt management plans which will cover transparency of fees and costs (particularly where they are upfront), misleading advertising, and safeguarding client accounts.  Again, in my view, working with the industry and trade bodies makes absolute sense before considering legislation and heavier regulation.

 
It's worth also noting that – in both cases – the approach being proposed will deliver faster results than would be achieved by the introduction of legislation.  Finally, as an aside, I have to mention again my particular soapbox that Debt Management Plans should be reported in the insolvency statistics so that the published numbers are a true representation of personal insolvency levels.

Weekly Blog by Philip King, CEO of the ICM - Dodging the silver bullet'

It has been a busy week. I went to the ICTF (International Credit & Trade Finance Association) Symposium in Paris on Sunday and presented to the delegates on Monday afternoon about the EU Late Payment Directive which is due to be implemented by March 16, 2013. Yesterday, I attended a Round Table at the House of Commons organised by the Forum of Private Business and Graydon discussing their ‘Research on Payment Culture', and this morning I attended Mark Prisk's Small Business Economic Forum at BIS.

The common theme with all three has been the impact of late payment on business and economic growth, a subject I also addressed in my blog last week. I've been looking at the EU Directive in much more detail and it includes some good elements building, as it has, on the 2000 Directive. Nevertheless, I remain sceptical about legislation being the silver bullet many suggest. Two of the primary reasons for the ineffectiveness of the current Directive are ignorance and reluctance. Huge numbers of businesses don't even know about the Directive and many of those that are aware of it don't know how to use it properly. Even if they know about it, and know how to use it, businesses don't want to upset their customers by raising an invoice for late payment charges and interest; they believe it will impact negatively on their relationship as a supplier. 

Consensus among the politicians, business organisation leaders, accountants and journalists at yesterday's Round Table was that it is the culture in business that needs changing. Legislation may play a part but it won't be the sought-after panacea. One of my most common themes when talking about cash-flow management is the need for payment terms to be integral to general trading discussions. Payment terms and arrangement shouldn't be sitting stage-left waiting to come on stage when everything else has been discussed and agreed! They should be discussed alongside price, discounts, colour, quantities, quality, delivery arrangements, and everything else that needs to be agreed.

Cashflow is vital to suppliers; the supplier's strength and sustainability of the supply chain is vital to buyers, and these issues are not mutually exclusive. When managed properly, credit terms can deliver more, to the benefit of supplier and buyer alike.

That's what credit management is about and why it's so important and central to business success.