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 - 'End of term report: could do better'

Last week Professor Russel Griggs, Independent Reviewer of the Banking Taskforce Appeals Process wrote a guest blog and I'm grateful to him for sharing his thoughts ahead of the publication of his second annual report. It was an interesting blog and has prompted me to return to a theme I've written about more than once before: the need for greater awareness of the appeals process.

 

Despite the assurances I hear from senior bankers at government forums and elsewhere that the independent appeals process is being drawn to the attention of businesses who are declined loans, I hear too many examples where that clearly isn't the case. Not so long ago, I listened to a presentation by a regional bank executive who seemed unaware of the process at all and, more recently, one of our own ICM members shared his experience with me. After a 37 year relationship with his High Street bank, he was told that his overdraft facility was being withdrawn because it had decided to discontinue its relationship with all customers in that particular sector. He approached alternative banks and raised the issue with the Financial Ombudsman Service, several MPs, the OFT, and government ministers. Neither his nor the other banks, nor one of these parties pointed him towards, or made him aware of, the independent appeals process.

 

I've always said that banks must be free to make their own lending decisions and I've resisted all the voices suggesting that banks must be 'forced' to lend. I stand by that view. The appeals process was intended to create an environment in which businesses could be assured that a loan declined had been declined fairly or provide an opportunity for such decisions to be reviewed and reversed when appropriate.

 

I expect Russel Griggs' report to show the process is working well when it is used and this should be applauded, but it can't work if people don't know about it. The banks, and government, aren't doing enough to bring it to the attention of customers and the wider business, financial and political community. They must do better.

 

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

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

 

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

 

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

 

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

 

 

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

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.

Guest Blog by Josef Busuttil, Director General of Malta Association of Credit Management - 'A Credit Management View from Malta'

The small market economy of Malta has been strong enough to resist and manage the economic and financial turmoil that hit the World, in particular, Europe. Thanks to the Maltese regulators, the financial services sector has remained significantly strong and the banks are still enjoying growth and increase in their profits. 2011 was also a record year for tourism, a sector on which the Maltese economy greatly depends.

This does not mean that all is rosy and that the sun shines 365 days-a-year over this rock. It also rains in Malta! Malta does not live in a vacuum. It forms part of the European Union and the Euro-zone, and it exports its products and services worldwide like any other developed country. Hence, what happens offshore affect the Maltese economy to a certain or greater extent!

One of the factors that has hit the Maltese business community is surely the rationed credit facilities from the foreign principals/suppliers. However, from a local credit perspective, Malta has made stark improvement during the recent past. Since MACM - Malta Association of Credit Management - was established in 2001, it has worked and lobbied for a better credit environment and Maltese businesses have witnessed improvement in a number of pertinent credit areas. This includes the number of dishonoured cheques that has gone down remarkably, the credit-related legal framework which is now in place, the judicial system which is more efficient, and business organisations are today adopting more the credit management practices, tools and systems provided by MACM in order to protect their cash flow and secure their long-term profit.

Nevertheless, MACM is aware that late payment is still a major concern for the Maltese businesses. It believes that authorities should do more to enforce legislation that would help creditors in their cash flow management. MACM suggests that the enforcement of court judgments should not only be efficient but also effective. Besides, MACM still notes that some local firms may not be deploying the proper credit management practices when granting and managing credit. These are some of the challenges that MACM is currently addressing.

In fact, MACM advocates that in today's business, a credit practitioner should do more than crunching numbers. The role of the credit practitioner should focus on how to gain and sustain competitive advantage in the market, whilst protecting cash flow and securing long-term profit. This requires up-to-date credit information and skilled staff supported by their top management team and assisted by the appropriate tools and systems in their day-to-day duties.

To support its members, MACM provides credit information which is updated on a daily basis. This information assists Maltese businesses to identify the most significant 'warning signs', which include:

*history of dishonoured cheques and overdue accounts;

* history of court judgements and executive warrants;

* history of court orders and court notices;

* customer changing banker/auditor;

* companies' information and accounts;

* changes in payment pattern;

* lack of filing of accounts as required by the Registrar of Companies (in case of companies);

*other databases that help businesses to identify their prospective customers.

MACM has also invested to provide education to the people working in the field of credit management. Thanks to the ICM Accreditation, Maltese credit practitioners have the opportunity to read the ICM Diploma in Credit Management and to sit for the relative examinations in Malta.

Credit Management is a peoples' function and having skilled and educated credit practitioners would result in better cash flow management, enhanced long-term customer relationship and improved business perception in the market, which are all required to gain and sustain competitive advantage and market share - which is the name of the game in such a changing global environment.

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

I seem to have been reading and reviewing an endless stream of lengthy reports and consultation documents recently, including the 150 page Ministry of Justice 'Transforming Bailiff Action' consultation over the past weekend, but more of that later (and please respond when the Institute issues its consultation survey questionnaire in the not too distant future). Some of the documents have been more interesting than others but let me mention two reports relating to consumer debt and advice.

The first is 'Debt Advice in the UK', the final report produced by London Economics for the Money Advice Service. The Money Advice Service, which was initially set up by the Government, is funded by a charge levied on the financial services industry and collected by the Financial Services Authority. It replaced the Consumer Financial Education Body in April last year. In 2012/13 the Service will use a budget of £46.3 million to deliver against its money advice targets, and a separate budget of £40.5m to coordinate the delivery of debt advice across the UK. Credit professionals working in the sector will be keen to see that the financial services industry's levies are put to good use!

The report concludes that 'Overall, the desk review of the existing literature and information on the debt advice sector and the consultations with stakeholders show that, while there exists a fair body of material on individual debt advice providers or programmes, very few analyses take a more holistic approach, covering the debt advice sector as a whole or, at least, large segments of it. Notable information gaps relate to: estimates of the actual and total demand for debt advice; the volume of debt advice provision by form and channel for the sector as a whole; the needs of actual and potential debt advice seekers; and the comparative effectiveness in the short and longer run of the different forms and channels of debt advice provision.'

I may be being cynical here, but to my simple mind it seems that the report tells us more about what it can't tell us than about what it can!

The second is the 'Consumer Debt and Money Report' launched by the Consumer Credit Counselling Service as the first in a series of quarterly reports based on research carried out by Cebr. This reveals: that households are spending 24 percent of their discretionary income - £199 per month - on interest payments; that the demand for debt advice is forecast to remain high and peak in 2014 as unemployment rises across the UK; and that middle-aged and older people will be increasingly affected by debt problems severe enough for them to need to seek help, highlighting the challenging financial situation that older households face. The report predicts that CCCS's share of clients over the age of 45 will rise from a historic 28 percent in January 2005 to a projected 47.6 percent by December 2014.

I was privileged to chair the ICM's Credit Industry Think Tank last week - it's always great hearing the views of leading experts from across our industry - and, during the forum, we were reminded that personal insolvencies are falling, with 2011's figure of c120,000 representing a fall of about 15,000 over 2010. Good news perhaps, but let's bear one thing in mind: no numbers are collected for debt management plants arranged through the advice sector and these do not appear in the official published insolvency figures (another piece of missing but vital data!).

I hope at least some of the Money Advice Service's £86.8m will be used to identify the real size of the problem and the effectiveness of solutions. Without knowing where we are, it's hard to plan the route to a better place!