Weekly Blog by Philip King, CEO of the ICM - 'Catching the bus'

It's been a busy news week. I was interviewed on Jeff Randall Live on Sky News on Monday evening about the government's proposals to cap the cost of Payday Lending.  A bit like buses though, news stories of interest tend to come in twos and threes, and I had a view on the three main news stories the programme was covering.

Firstly, the Lawrence Tomlinson report containing allegations that RBS had pushed healthy small and medium-sized businesses into administration to strip their assets and then buy them back cheaply to make a profit.  As the MP Mark Garnier said in his interview: "I'm not a lawyer, but these allegations, if true, look a lot like fraud to me." How many credit professionals are looking back at bad debts incurred where they thought their decision to supply had been reasonable based on their assessment of customer risk only to be caught with a bad debt when the customer went in to insolvency and wondering if the allegations might be true?  Apart from the obvious impact on the businesses forced into insolvency, what might the wider impact on their suppliers and the economy be?

Secondly, the government was selling £900m of student loans to a debt management consortium for £160m. The loans had been taken out by students who started courses between 1990 and 1998.  Part of the reaction to the news was that debt collection companies would act irresponsibly and aggressively in recovering debts that have so far not been collected.  The Student Loans company doesn't have the best record in managing its loan book and particularly the older elements of the portfolio.  We're told the terms and conditions of the loans are not going to be changed as a result of the sale and, if engaging third parties increases the recovery of funds to the public purse, then I'm all for it.  Perhaps the debt collection companies will just apply good credit management principles and collect money that is overdue from people who can - and should - be repaying it.

Thirdly, the Chancellor's announcement that government will impose a duty on the FCA to cap the cost of payday lending.  Setting on one side the suggestion that the announcement is one of political expediency, there are bigger questions to be answered. How will the cap level be determined?  The quoting of the Australian model with its cap of 4% per month seems to overlook the 20% arrangement fee that can be charged, and the punitive penalties for late payment that can be applied.  And the last thing we want is for the cap to make short-term lenders flee the market forcing borrowers to use loan sharks instead.

I'm not averse to the principle of restricting overt profiteering that can exploit the most vulnerable but let's not forget that payday lenders aren't the only guilty parties here.  As I said to Jeff Randall, I went online and looked at what £100 payday loan for a month would cost.  I'd have to pay back £137.15. If I took an unauthorised overdraft on my current account with a High Street bank the cost would be £5 per day, capped at £95 in a month.  On another current account I looked at, the cap would be £150, and both of these accounts would also charge transaction fees on top.  On this comparison, charges of £37.15 sound a snip!

Equally big issues with payday lenders are the opportunity for borrowers to take out multiple loans with multiple lenders, the availability of repeated roll-overs, and - as I've said in this blog before - the failure of lenders to carry out adequate affordability checks ahead of granting loans.

Back to my buses analogy, I guess next week will be devoid of any significant news and we'll be back to following the exploits of celebrities and their social lives!

 

Weekly blog by Philip King, CEO of the ICM - 'Sharing the golden nuggets!'

I spent a day this week at the ICM's Quality in Credit Management Best Practice Conference in London. The event was for organisations that have achieved, are on the journey towards achieving, or aspire to achieve the Quality in Credit Management accreditation award. What a great day.

 

I'm not going to bang on about the benefits of the Quality in Credit Management Award accreditation scheme (though clearly I could) but rather I'm keen to talk about the benefits of sharing best practice. When you get a group of people in a room who are at the top of their game - either personally or from an organisational perspective - it's amazing what comes out.

 

At the conference, we heard a series of speakers sharing their experiences and giving examples of best practice. Of course, what works for one organisation might not work for another, but hearing and filtering ideas is a great opportunity to improve, and helps meet one of the objectives of QICM, that of facilitating continuous improvement for people and organisations.

 

Some of the ideas were incredibly simple and others far more sophisticated. For example, we heard about the huge impact of introducing very simple and cheap 'music on hold' which made a great positive impression on both customers and the internal organisation.

 

More than one presenter talked about their plans to educate customers to improve their own credit management processes and procedures on the basis that, if they were more effective at collecting cash, they'd be better able to settle invoices promptly. A good example of sharing best practice with the wider business community and particularly with SMEs and micro-businesses who may lack relevant experience and expertise.

 

We saw some impressive dashboards and an explanation of how they can be used to best effect. Letting commercial people understand the value of overdue debt in terms of a number of new salesmen or replacement delivery vehicles, for example, is not a new idea but is very powerful.

 

Afternoon presentations addressed how to energise and motivate teams through periods of change and how to make step changes in performance. Some innovative and invigorating ideas on how to create a culture that is focused, cohesive and driven. The case studies came from large organisations but contained concepts that could be adopted in a variety of environments.

 

What's even more interesting about events like this is that people can contribute more than they realise. Participants turn up expecting to learn from the wisdom and experience of the presenters without realising how good they are themselves, and what nuggets they also have to share. Whether we call it networking or by some other grand name, sharing what we know, what we do, and what we've learnt is one of the most powerful business tools, and we should do more of it.

Weekly blog by Philip King, CEO of the ICM - 'The price of success'

I've written several blogs about the payday loan industry in recent months saying, in summary, that I don't believe the concept of short term loans is fundamentally wrong and that emotion sometimes over-rides objectivity. But that does not mean that poor practice is ever acceptable. In particular I've ranted about the absence of evidence that affordability tests were being carried out and said the OFT should, in its final year, focus on this particular element.

Wonga's announcement that its pre-tax profits were up by 35% and bad debts were up by 89% has brought the sector back into sharp focus and - reading reports and commentaries - two things have struck me.

The first is Ian King, the Times Business Editor, observing that Wonga is one of the good guys in an industry that has appalling practices; by way of example he cites that it will not allow its customers to "roll" their loans more than three times and observes that the interest rates they charge are, for example, far lower than those incurred by running up an unauthorised bank overdraft. In my view, being cheaper than someone else isn't necessarily justification but it's certainly true and mitigates against some of the more emotional headlines we see. Indeed, elsewhere in the paper it's reported that loans cannot be rolled over more than twice and that Wonga stops racking up interest after 60 days to prevent debts spiralling too far out of control.

More worrying though is the quote from Wonga's Chief Executive, Errol Damelin, who is reported as saying Wonga loans were too small to be a significant problem and "it's very unlikely that a £200 or a £400 loan is what gets people into a financial mess". Perhaps by itself such a loan value won't, but as part of a vulnerable financial situation it can play a key role especially if it's taken out in desperation and as a last resort. I'd like to think Wonga is an exemplar in carrying out adequate and effective affordability checks but come on, Mr Damelin, get real - £400 MIGHT NOT be a problem for you but it could well be for some of your customers and potential customers!

 

 

Weekly Blog by Philip King, CEO of the ICM - 'Mixed Fortunes'

The last week and a half has been pretty amazing. I returned from a great two-week break touring the Scottish Highlands, I've had my 57th birthday, and my first grandchild has been born! The North West of Scotland has breathtaking scenery and it was brilliant to spend some quality time relaxing with Mary, my long-suffering wife. Apart from one afternoon looking at late payment issues and talking to a Financial Times journalist, I genuinely avoided emails and voicemails and it made a pleasant change. I'll skirt round my birthday since I've had so many of them now that there's not much to say!

The really exciting news is the arrival of my grandson which has brought back all the emotion that accompanied the arrival of our own children 29, 26, and 21 years ago, and has reminded me of the miracle that childbirth represents. My blogs aren't often personal but I couldn't let this event pass by without a mention, although I won't pick up my phone and start imposing pictures on you as I might if you were here!

On my office desk when I returned to ICM HQ was the StepChange Debt Charity Statistical Yearbook for 2012 and it brought me back to the real world with a bump. On average across the year, someone sought help from the charity every 78 seconds either online or by phone and we have to remind ourselves that StepChange is just one route for debt advice. There are numerous organisations offering support, help, and advice and – looking at the most recent Credit Action debt statistics – I see that Citizens Advice Bureaux in England and Wales dealt with 7,824 new debt problems every working day during the year ending March 2013. Worse still, the letter accompanying the StepChange report reveals that, for about a quarter of the clients they advised last year, they were unable to suggest a way forward because the client lacked the means to cover essential living costs while insolvency was inappropriate for their circumstances.

To help some of these clients StepChange has launched a new 'token payment' service, an interim measure of short-term relief allowing clients time to get their affairs in order where there is a reasonable expectation that their circumstances will improve in the reasonably short-term. Token payments, of course, are not new but this approach to their administration is, and it coincides with a pilot 'Sustainable Debt Advice Project' run by AdviceUK which is now being rolled out more widely.

Just as we all have cause to celebrate from time to time, so we all face problems and many customers get into financial difficulty because of a sudden or dramatic change in circumstances. We want to be paid what we are owed, and solutions giving customers who want to pay some temporary breathing space are to be welcomed, especially if the longer-term prospects are improved as a result.

Finally, it would be remiss of me not to thank Charles Mayhew, Sue Chapple, and Sue Kettle for their excellent guest blogs while I was away. I appreciate their support and enjoyed their contributions.

Guest blog by Charles Mayhew FICM, Director of Moreton Smith Limited –‘Brass Bands and Bacon Rolls’

I was delighted to be asked to be a guest blogger by Philip some months ago, and was wondering what I could write.

How the late payment act is working? Perhaps some interesting stories about collecting debts in the Middle East and so on? So while I was reflecting on a topic, I started remembering all the fascinating people I have met in our Industry, and of course being involved in International collections, many different nationalities.

I was recently made a Fellow of the ICM and a very proud one also. So therefore, having been the recipient of what should be perceived as an Oscar, I am hoping to thank a few people and share some stories of my 20 years in Credit - so far! It’s not over by any means.

It all started in 1994 just after I returned from living and working in Abu Dhabi with my wife and two (then) young children. I was interviewed by a distinguished American Gentleman, Stanley Tulchin of STA Associates who introduced me to the collections industry. His favourite saying was “Volume without yield is an unnecessary expense”. Wise advice from a wise man. Stanley was a great supporter of the American Collectors Association and also the NACM in the USA and insisted that we became heavily involved with the equivalent UK organisation which of course we did. I was lucky enough to travel to Chicago for the NACM conference, the same as the Annual ICM at Gaydon but much larger.

I compared notes on the ICM with Ted Brown, who was spotted in window of the Hotel opposite me in a John Cleese type moment. We couldn’t believe the massive brass band marching through the exhibition halls, the amount of people in attendance, and the lavish stands that many companies had invested in. I also attended the New Orleans NACM conference a few years later, and that was an experience. Then coming back to the UK I remember well the Liverpool and Merseyside conference and Lynne Mills enticing us all to arrive promptly with the lure of Bacon Rolls, which were delicious. It was 1998 before I became an MICM and I actually remember saying to my older brother, himself a Lieutenant Commander in the Royal Navy, that I eventually had letters after my name.

My Mum was also impressed! I joined Richard Moreton and Mark Smith in 2003 and was grateful for my time at STA but the bright lights of London beckoned, and the opportunity to become a shareholder in a growing business. Again my previous colleagues at STA were household names, who I gained invaluable experience from. Colin Thomas and Kevin Terrel, all with great sayings such as “companies owe money but people pay bills” (I don’t think that’s copyrighted though).

Philip King, Brenda Linger, Stuart Hopewell, Larry Coltman were all encouraging me along with Richard Seadon especially to apply for my fellowship. 

I am delighted that I did, it has made me even more passionate about the industry we work in, and what it has always allowed me to do is to reflect on how many good people have had an influence on my career so far. Over the years and travelling around to see many credit managers as I do, people are always quick to give an opinion on the ICM. Another saying is you only get out what you put in.

I will continue to support our professional body, and perhaps even more importantly the people who are in our industry. Socialising with them is also a healthy part of it, we call it networking. Have a great summer.

Charles Mayhew FICM

 

Next week Philip King’s guest blogger will be Sue Chapple, Head of Revenue Management of EDF Energy Plc.

 

 

Weekly Blog by Philip King, CEO of the ICM - 'Reading, writing and credit management'

Back in February the government announced a new draft National Curriculum for England that would see financial education embedded in both mathematics and in citizenship education, making financial capability a statutory part of the curriculum for the first time. The draft programme of study for citizenship would include the functions and uses of money, the importance of personal budgeting, money management and a range of financial products and services in Key Stage 3, and wages, taxes, credit, debt, financial risk and a range of more sophisticated financial products and services in Key Stage 4.

 

This week, following a period of consultation, Michael Gove published the revised Curriculum and the financial education has been further strengthened by the inclusion of 'risk management' into Key Stage 3 and 'income and expenditure, credit and debt, insurance, savings, pensions' at Key Stage 4. Recognition is due to pfeg for its work in pushing for this enhanced content.

 

Providing education that allows children to leave school with financial literacy can only bode well for the credit profession in the years ahead if it means consumers are more financially aware. None of us wants to see people in financial difficulty through ignorance because they weren't sufficiently aware or informed.

 

In my blog last week I called for the OFT to ensure that affordability tests were genuinely being carried out by payday lenders to avoid the vulnerable being caught in a vortex of indebtedness. An interesting discussion has unfolded in response on the ICM Credit Community LinkedIn group (you can find it here) I don't agree with all the comments - simply outlawing payday lending could carry serious unintended consequences involving a growth in back street loan sharks, for example - but action in the short term is needed and, for the longer term, education will also play its part. Now we need to make sure teachers are provided with adequate tools to deliver the proposed curriculum content.

Weekly Blog by Philip King, CEO of the ICM - 'The power to make a difference'

I was privileged to chair the 5th National Consumer Debt Conference, organised by Utility Week, in Birmingham on Tuesday. It was a full and interesting day with the order of subject matter judged exactly right.

 

The first section focused on the economic landscape looking at issues around ability to pay, the implications of the current welfare reforms including Universal Credit, and the mechanics of the government's Green Deal scheme. The second section looked at customer management including the use of analytics to identify the most vulnerable in our society, and a cross section of good practice examples of customer-driven strategies. The final part of the conference addressed billing and collections, exploring areas as diverse as fraud and meter-tampering, landlord web-portals, risk management strategies, and smart metering.

 

You'll probably guess from some of the subject matter above that the delegates were largely from the utility and energy sectors where there are some particular credit management issues. The water industry's problems arising from the obligation to supply, and difficulty in identifying customer details, particularly in tenancies, for example, are well known and equally well documented.

What always strikes me at events like this, however, is just how many themes are common across industries and sectors. While each has its own peculiarities, trends, and concerns, the principles and elements of good credit management practice are largely shared.

 

At the end of the conference day, I hosted an interactive workshop where we discussed, amongst other things, what best practice looks like. One of the common themes that emerged was the need to drive professionalism within organisations through the engagement and development of credit professionals within them.

 

Driving that professionalism is one of the key objectives of the Institute of Credit Management and I'm always proud to hear examples of where we're succeeding, and to be playing a part in raising standards and performance as a result.

 

 

 

Weekly Blog by Philip King, CEO of the ICM - 'Painting a grim picture of Payday lenders'

I've been inundated with government papers over the past few weeks such as the Insolvency Practitioners Fees Review, the Review of Pre-Pack Administrations, the Simpler Reporting proposals for Micro Businesses, the Money Advice Service proposals to improve the quality of Debt Advice, HMRC and DWP debt management strategies, the Treasury and FSA consultations on the transfer of consumer credit regulation from the OFT to the FCA, the proposed EU Data Protection changes, and a host more.  As a result, I've been a bit tardy in getting to read in detail the OFT's Payday Lending Compliance Review.  Its contents are shocking.

 

Let me make it clear from the outset that I am not in the 'outlaw all payday lenders' camp; I believe that such products have their place and when offered, and used, sensibly can be useful to a good many people.  But that doesn't excuse the findings in this review.  Among the highlights, or perhaps I should call them lowlights, the review reports that 28% of loans issued in 2011/12 were rolled over at least once, with at least a third of lenders actively promoting rollover at the point of sale and a number agreeing to rollover loans even after a borrower has missed a repayment.  By way of example, staff in two large high-street firms were told that rollovers were regarded as 'key profit drivers' and that staff were encouraged to promote them. In one case, this was even written into the training manual!

 

Equally worrying to me though is the absence of affordability checks.  Most lenders asserted that they undertook affordability assessments at the initial loan stage yet the vast majority were unable to provide satisfactory proof that they had applied such assessments in practice.  Only six of the 50 lenders visited were able to provide documentary evidence that they assessed consumers' likely disposable income as part of their affordability assessments.

 

The basic premise of credit management, whether the customer is a multi-national business, a small trader, or an individual, is to determine whether the customer is 'good' for the amount of credit being extended and whether it can afford to repay in accordance with the agreed terms. Furthermore, in the case of consumers, assessing creditworthiness is a requirement of the Consumer Credit Act and OFT guidelines.

I know the majority of the inspections were carried out before revised industry codes of practice and the sector-wide Good Practice Customer Charter came into force but the revelations of the report paint a wholly unacceptable picture.  The enforcement action already started and the 12 week deadline to address all areas of non-compliance is welcome, the proposed investigation by the Competition Commission makes sense, and the expectation that the FCA will take a more rigorous approach when it takes over consumer credit regulation next April is encouraging.

 

In the meantime I hope the OFT will live up to its promise that it will not gradually fade away but will continue to act vigorously in the period until it is replaced by the FCA.  A year is a long time in the consumer credit market.

 

I'll be welcoming a couple of guest blog writers over the next two weeks. Charles Wilson, Managing Director of Lovetts Solicitors, an ICM Fellow, and a member of our Technical Committee will be writing next week, and our own Debbie Tuckwood, ICM Director of Learning & Development, the week after.  I'll be decorating over Easter so will be looking forward to returning to normality thereafter!

 

 

Weekly Blog by Philip King, CEO of the ICM - 'New Directive leaves authorities doing the maths'

So, the deadline for transposition of the EU Late Payment Directive 2011/07/EU finally arrives this Saturday and the UK government has met the deadline and even issued a Users’ Guide that can be found here.

 

I don't want to go into great detail about the Guide, Directive or Statutory Instrument here, but one paragraph in the Guide has really caught my attention. The paragraph in question within the 'Payment between public authorities and business' section says: ‘If you are a Public Authority..........If you do not pay within the deadline, you are obliged to automatically pay the outstanding amount that includes daily interest for every day payment is late based on 8 percentage points above the Bank of England’s reference rate plus the fixed amount, depending on the size of the unpaid debt. The onus is on you to pay your supplier on time and the supplier is not obliged to remind you that payment is outstanding."

 

The public authority customer is therefore expected to proactively recognise that it is paying late, calculate the late payment charges/interest and add the amount to the remittance regardless of whether the creditor asks for the amount or not! Now, I don't want to be a cynic but what are the chances of this actually working in practice? I can see all sorts of issues and difficulties: how, for example, are authorities going to know they are expected to do this? Who is going to make the calculation and approve the additional payment? How is the increased value going to be matched to the original purchase order? I'd be interested to hear views from readers with their opinion of how they see this working. Please email me at ceo@icm.org.uk or go to the ICM Credit Community LinkedIn group, or the Discussion Forum on the ICM website members area’ and let me know.

  

Finally, I have to mention Start-Up Loans. I'm privileged to have been involved on the Board of the company since its launch and I'm incredibly proud of its success as demonstrated by the announcement this week that the scheme has exceeded expectations as 2,000 aspirational young entrepreneurs have now received support (a loan supported by mentoring) to help get their business venture off the ground. The scheme has already reached its £10 million pilot spend, and a further £5.5 million injection of funding was approved this week in Parliament to fulfill its pipeline until the end of the month. The Government has made £117.5 million available to fund the Start-Up Loans scheme up to 2015. Amidst all of the sometimes dubious schemes our government has come up with in recent times, this is one where it appears to have got it right.

Weekly Blog by Philip King, CEO of the ICM - 'That was the week that was!'

Firstly, we had the ICM British Credit Awards at the Park Lane, London Hilton on Wednesday last and, from all the feedback I've received so far, it was our best awards event yet, and one of the best the industry has ever seen. Over and above the joy of celebrating with all those who were short-listed for awards, and particularly with the winners, the evening was a triumph with exceptional entertainment from The Three Waiters, and superb hosting by Martin Bayfield. It was great to spend a night in the company of colleagues from across the industry and a reminder of what organisations like the ICM do so well.

 

Secondly, on Thursday, Michael Gove - the Education Minister - announced that the new draft National Curriculum for England will see financial education embedded in both mathematics and in citizenship education, making financial capability a statutory part of the curriculum for the first time ever.

 

Specifically, the new programme of study for Citizenship includes the functions and uses of money, the importance of personal budgeting, money management and a range of financial products and services in Key Stage 3, and wages, taxes, credit, debt, financial risk and a range of more sophisticated financial products and services in Key Stage 4.

 

This announcement follows a prolonged pfeg (Personal Finance Education Group) campaign supported by the All Parliamentary Group on Financial Education (chaired by my local MP, Justin Tomlinson) and by hundreds of MPs, teachers, parents, and professional bodies including the ICM. It is a triumph for pfeg which coincidentally was the chosen charity for our Awards Dinner and will benefit from the many financial pledges made on the night in its mission to support education providers in giving children and young people the skills, knowledge and confidence to manage money.

 

As I write these words, more pledge cards are still being received so we do not have a final figure of commitments made but, from our work with pfeg in recent years, I am confident that it will all be put to good use and will help to ensure that the next generation is better equipped to deal with personal finance and debt than the current generation.

 

On that subject, the ICM Think Tank this week focused on the role of the advice sector, and particularly the work of StepChange Debt Charity that has been helping people break free from problem debt for 20 years. It was useful for the group of senior executives from across the credit industry to learn more about the charity's mission and work, and to discuss the role of the advice sector and its relationships with the creditor community.

 

Finally, it was good to see the publication by the Insolvency Service of its Debt Management Plan Protocol which aims to protect and promote the needs and best interests of consumers who take out DMPs. In particular, it should help to ensure there is a greater level of consistency and transparency and weed out some of the unscrupulous operators who are conspiring to give the sector a bad name.

 

All in all a good week then!

 

Weekly Blog by Philip King, CEO of the ICM - 'Stand and be recognised'

I wrote last week about the importance of aspiration and referred particularly to the contribution of ICM members in helping to formulate our aspirations as an Institute. One of those aspirations is to achieve recognition of credit management as a profession in its own right. We want to be able to hold our heads up as equals alongside accountants, lawyers, architects and other professions. In some organisations we do but there is some way to go in others.

 

Two events this week have reminded me of this and of its importance. The ICM was strongly represented at a ‘Dods’ conference on Monday: Tackling Debt Owed to Government. We presented to two breakout sessions, had a stand in the exhibition area, and I was pleased to be able to present to an audience of over 200, mostly public sector employees and management, in the afternoon. My message was simple and clear: if Government wants debt to be taken seriously within the public sector and wants collection to be effective, then Debt Management must be seen as a profession and not simply 'doing a job in the Civil Service'. To achieve that culture shift, the value of the contribution of the role must be recognised, the impact of it being done well must be recognised, and professionalism in the Debt Management teams must be promoted and recognised.

 

Yesterday, I hosted an ICM Regional Roadshow in Exeter that was combined with a Quality in Credit Management Best Practice event. What did I see and hear about there? Professionalism in practice; examples of organisations that are best in breed and demonstrating the very professionalism I'd been talking about on Monday, and an audience of credit professionals who were eager to develop their knowledge and skills so that their contribution could increase and become even greater.

 

If you look up 'professionalism' in a thesaurus, you'll see words like competence, knowledge, and expertise but you don't need to find alternative words. Professionalism means exactly what it says and it's what we're all about.

Weekly Blog by Philip King, CEO of the ICM - 'Making business add up'

I've been catching up on reading that accumulated while I was on holiday and had a look at the SME Finance Monitor over last weekend; the full document can be found here: http://www.sme-finance-monitor.co.uk

 

A few interesting statistics struck me: 43% SMEs are using external finance, compared with 51% a year ago; 34% of loan and 21% of overdraft applications were declined; banks offered alternative funding or pointed to alternative sources of finance in just 9% (loans) and 13% (overdrafts) of cases; 70% of those declined felt the advice they received from the bank was poor and 25% were not given reasons for the decline decision. Almost more alarmingly, only 8% (loans) and 14% (overdrafts) of declined applicants were aware of the appeals process even though it's been available for well over a year now, and just 47% were aware of any of the Government's lending initiatives, of which the National Loan Guarantee Scheme is but one example.

 

So we still haven't fixed the problem that banks (and the Government) aren't communicating adequately with the SME community, and the message persists, particularly from the media and some business organisations, that banks remain reluctant to lend. But we do also need a sense of balance.

 

I've just started listening to Jonathan Moules' book 'The Rebel Entrepreneur'. Jonathan has been Enterprise Correspondent at the Financial Times for several years and he makes the point in an early chapter that, although the banks may seem reluctant to lend, there is a balancing argument that says the current economic situation is in part due to banks lending when they shouldn't have done so, and on terms that were unsustainable. He argues that many businesses do not merit being lent to, and gives examples of very successful businesses that achieved their growth by managing in the early days on a shoestring and refusing to incur debt that could sooner or later become a millstone. If the banks don't impose sensible lending policies, we'll be in danger of repeating the cycle all over again.

 

I'm an avid follower of Dragons' Den and it's hard not to be frustrated by entrepreneurs who clearly have a brilliant business idea but cannot remember, or worse do not know, the salient financials on which their request for funding is based. If someone cannot say how much the business turned over or made/lost in the recent past, then why would anyone have the confidence to risk their own capital? Talking to bankers I hear many examples of businesses who seek funding based on a business case that is at best unrealistic and, at worst, simply doesn't add up (literally).

 

Just as businesses have to help themselves by applying basic credit management principles, so they need to think through their plans and ensure they put together a business case that is realistic and believable before they ask for funding. The more information they provide, and the better it is, the greater their chance of success. 

Guest Blog by Nigel Fields, Director of International Credit at Twentieth Century Fox - 'Who the hell is Nigel Fields'

I thought, as this is my first ever Blog, that I should first start by letting you know; Who the hell is Nigel Fields?

 

OK, here I go, I think I am incredibly lucky!  In fact I feel life has been really kind to me, from being with my fantastic wife, Jackie since age of 13, (hey, I was not married then) rolling on to 32 years later with our two great kids Harry and Sally, who kindly make sure I never have any money to worry about and can continue to train and practice for myself the art of ‘Debt Management’.  I have met so many fantastic friends along the way.  And today I am working with, what I consider, to be one of the greatest businesses of all, ‘The MOVIE Business’ and in particular Twentieth Century Fox where I sit in Soho Square, London which is also probably the coolest, friendliest place in London.

 

I have been at Fox for 13 years now, and have established my role at Fox as Credit Director working with all countries outside of the USA and Canada.  Here’s a summary of what I get up to.

 

- Oversee Fox’s international risk management providing clarity of Fox’s objectives for risk and financial control to territories.

 

- Identify and monitor “at risk” customers within territories.

 

- Make recommendation for the mitigation of any risk gaps using best available and most cost effective solutions e.g. Credit Insurance, PUT options etc. and provide recommendations for doubtful debt provisions as required.

 

- Provide consolidated reporting of international Accounts Receivable.

 

- Assist Subsidiaries with debt recovery strategies.

 

- Best Practice reviews, improvements & enhancements.

 

- Provide the business with technical expertise in all areas of credit management and make best practice recommendations to territories for a structured credit management framework to improve cash flow where possible.

 

- Responsible for Credit vendor management.

 

 - Privileged to be a Member of the Institute of Credit Management and sit on the ICM Editorial Panel and Think Tank.

 

- Having to attend Premiere’s, meeting film stars and personalities, attending Awards e.g. Bafta’s, travelling the world and watching loads of films.  This makes it all so very hard.  It is a great business and I never ever get bored.

Weekly Blog by Philip King, CEO of the ICM - A positive step for debt management'

The OFT published its Debt Management (and Credit Repair Services) Guidance last week, following consultation last year, and this represents a positive step in improving compliance across the debt management sector. The guidance can be found here and will also be signposted in the ICM Briefing due to be issued to members shortly after Easter. Three things have struck me as worthy of note from an ICM perspective.

Firstly, credit professionals should be aware of the creditors' responsibilities highlighted in the guidance. For example, in paragraph 3.48, it says "the OFT expects creditors to have appropriate regard to this guidance when dealing with third parties acting on the client's behalf. Creditors should not refuse to deal with a debt management business or other third party unless the debt management business or third party failed to comply with relevant consumer protection legislation and/or have appropriate regard to this guidance. Under such circumstances, the creditor should be able to satisfy the OFT that it has an objectively justifiable basis for refusing to deal with the other party if asked to do so. Creditors who provide advice to customers who are behind with their payments should have regard to the spirit of this guidance". This, together with the following paragraph 3.49, is particularly relevant to many credit professionals and we should be mindful of it.

Secondly, I am pleased that our contribution to the training within the sector has been recognised. The guidance says that "licensees should have adequate training in place for staff, agents (such as self-employed debt advisers) and franchisees acting on their behalf, to ensure they are sufficiently skilled and knowledgeable to carry out their role", and the ICM is included in the list of examples of accredited training.

Finally, the example of unfair or improper business practice have been modified with the reference to dividing available income between debts in proportion to their size being removed. The Institute argued that the requirement to introduce what, in some cases, would be subjective judgment could be unhelpful to creditors and work to their detriment. I'm pleased our voice was heard and is reflected in the final version.

P.S: I'm on holiday next week and have been reliably informed I will be having a week free of Twitter, blogs and email so I'm delighted my good friend Josef Busuttil (my counterpart at the Maltese Association of Credit Management) has agreed to write a guest blog.

Weekly Blog by Philip King, CEO of the ICM - A journey of discovery'

My contribution this week is going to be short and sweet, or perhaps not quite so sweet, and it's about a payday loans company. But I'm not adding to the many column inches and hours of airtime devoted to the subject in recent weeks. Indeed, the OFT's announcement a couple of weeks ago that it has launched a review of the sector makes me think it's best to wait until the outcome of that review is known - and the dust has settled from the publication of the BIS Select Committee's report this week - before adding my two pennyworth to the debate.

My comments relate instead to a story in The Times on 17 February after Cash Converters UK had issued its results for the six months ended 31 December 2011. It said that 'it's nascent lending business had shown a big rise in bad debts' rising from 9% to 11% between 30 June and 31 December. The company said: 'The UK business reviewed its lending criteria in November 2011 and as a result has made certain adjustments to their procedures. This action, combined with the appointment of a new collections manager, should reduce the bad debt percentage going forward. Over time, as the new business matures and our customer information database improves, we would be targeting a significant decrease in the level of UK bad debts.

'Cash Converters appears to have discovered what many of us already know: that tightening lending criteria, having better customer information, and appointing a new collections manager reduces bad debts. While it seems to be stating the obvious, I'm pleased it reinforces my view that professionalism is vital and adds real value. When good practice is applied to policy and process, and good credit professionals are employed, then businesses can only benefit. This is the message at the heart of everything the ICM stands for and drives.

Weekly Blog by Philip King, CEO of the ICM - 'Setting the future agenda'

I attended the ICM's 15th Regional Roadshow yesterday. Held at The Royal Armouries in Leeds, the attendance was excellent and so was the content. Gerry Barron focused on the concept that this is the time for credit managers, whereas James Perry, a solicitor from DWF, talked about what credit professionals can do to improve the chances of recovery in legal action to recover debts. I also shared my thinking about the credit management profession and the professionalism of those working within it.

The event prompted three thoughts to stand out in my mind: firstly, Gerry's statement that credit managers should be setting their own agenda in the current economic times; secondly, that we should be proud of our professionalism and the real value we add; and thirdly, that we should be smarter in the way we communicate to the audience beyond the credit professional.

Gerry worked through an example showing how the profit on a simple debt of £50 was eroded by late payment or, worse, non-payment and set out in absolute terms the impact to the business. The Benchmarker module for ICM Online Services available at: http://www.icmos.org.uk/ has a profit erosion calculator that demonstrates the same realism. It's a good way of making you think, and would be usefully shared with colleagues across our organisations as an indicator in real terms of the value we add. There is, after all, a positive impact to contrast with every negative impact - the opposite of profit erosion is profit generation - and that's where our professionalism can make a real difference!

The first and third thoughts are linked: if we're going to set the agenda, we also need to communicate in the right way and using the right language. All too often, we talk about DSO which means everything to a credit audience and almost nothing to anyone else. I believe strongly that DSO is a good and useful measure, especially on a trend basis, but it's rarely appropriate for a wider audience who would understand alternatives such as the amount of available cash collected for the additional amount of cash released into the business. Guess what, if we use graphs for the last two, an upward line is good news that matches the graphs used by our colleagues in almost every other area of the business. Credit people are, by their very nature, good communicators and a simple, subtle change to language and presentation could generate an exponential rise in the way we're perceived in our own organisations. It's time for us to set our own agendas!

Weekly Blog by Philip King, CEO of the ICM - 'Stating the obvious'

The Tribunals, Courts and Enforcement Act 2007 contained provisions for the regulation of bailiffs and followed a White Paper published in 2003. Since then, I have been to numerous meetings to discuss the issue and the Ministry of Justice has been repeatedly promising a consultation on detailed proposals for a new regulatory regime. When Justice Minister Jonathan Djanogly announced this week the release of updated 'National Standards for Enforcement Agents', he also promised that the Standards are 'the first step towards tackling this issue (unscrupulous bailiffs), which will be followed shortly by proposals for a new regulatory regime.' I'm heartened that at last something seems to be happening but, although I understand the consultation is expected in Spring, I'm always nervous when I see the use of words like 'shortly'. I remember the importance of SMART objectives being used in business and I sometimes wish the public sector would apply the principles by putting a specific and measurable date on actions rather than using vague descriptors like 'soon' and 'shortly'.

Anyway, back to the updated Standards. They can be found here but don't expect to be overwhelmed by their content. Creditors' responsibilities include, among other things, that they should be aware of their own responsibilities, must not seek payment in order to secure a contract, must notify the enforcement agent if the debtor pays or contacts them, and must forewarn the debtor of impending enforcement action. The section 'Professionalism and conduct of the enforcement agent' says they must act within the law at all times, must not be deceitful by misrepresentation, must not act in a threatening manner, should always produce relevant identification, must not discriminate, and a few other similar instructions.

In short, there is little in the Standards that any credit professional or enforcement agent couldn't have written on the back of an envelope if asked to suggest what they should be. As the document says, they are not legally binding, but offered as a 'helpful tool for the industry and for creditors.' As Colin Naylor, Co-Chairman of CIVEA (the Civil Enforcement Association) points out: "these are the Industry's own standards......all the signatories are already committed to the practices and standards contained in the document........and most CIVEA members already publish similar creeds of professional behaviour."

So will they have any effect on 'unscrupulous' bailiffs? I think not, and I wish the time and effort in producing them had been spent on drafting the long-promised proposals for a new regulatory regime so that the consultation can get under way and we can see some real progress.