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 - 'Harnessing support for exports'

You might have seen that this is Export Week designed to draw attention to exporting and the need for businesses in the UK to do more of it. The government has set some ambitious targets for 2020: achieving exports totalling £1 trillion and having 25% of businesses exporting, the current level is 20%.

By coincidence, the guest speaker at the ICM's Credit Industry Think Tank on Tuesday was Robert Hurley from UK Trade & Investment who shared some interesting information and facts about particular export markets and the work of UKTI, interspersed with some personal anecdotes from his long experience in exporting before joining the government organisation.

UKTI works with UK-based businesses to ensure their success in international markets and provides support in four key areas: business planning, market research, market promotion & publicity, and market visits. Although I've had significant contact with the organisation over recent years, I hadn't realised the depth or breadth of the service and support they offer.

One particular service that caught my attention was the 'Business Opportunity Alerts'. A business can register on the website stating its sector and the markets it is interested in, and it will receive alerts of any relevant opportunities that arise. I don't know how many of the 4.8 million businesses in the UK have registered for the service, and I don't know how many businesses are even aware of the facility, but I'd hazard a guess that for both it's a pretty small proportion, and that's a shame.

Exporting is a really good way to grow our economy, and it's good for business generally, so services like this need a high profile. I've talked in previous blogs and elsewhere about the disappointing lack of awareness among the business community of various government schemes and this is another example.

A huge amount of good work is put into supporting businesses, especially the small and medium ones, and it's a pity when that effort goes to waste. More needs to be done to bring such things to the attention of business owners and government needs to get smarter. In the meantime, if you know a small business that's even thinking about selling into overseas markets then you could do worse than point them to www.ukti.gov.uk

 

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 - 'Firing the imagination'

I talked last week about the flurry of consultations being launched by government ahead of the summer holidays and, guess what, there have been even more since I wrote those words.  It feels like I have spent every waking hour of the last ten days ploughing through page after page of government documents and preparing questionnaires and summaries to share with our members so they can comment and offer their views.

The latest to hit my inbox was HMRC's consultation document: 'Sharing and publishing data for public benefit', a set of proposals that "form a significant development in HMRC's Open Data Strategy".  Judged by the title, you wouldn't imagine this has much to excite credit professionals but ­ as is so often the case ­ there are nuggets hidden away that are very interesting.  Indeed, I would go far as to say that this one has genuinely excited my imagination. Why is that?

In amongst the detail, the paper suggests the possibilities of releasing of basic non-financial VAT registration data as public data, and sharing more detailed VAT registration data on a more restricted and controlled basis for specific purposes, such as credit referencing.  It also considers whether VAT registration data could provide a foundation for private sector business registers.  It is this last point that lights my fire! I'm old enough to remember the Business Names Register (I think it was called) which allowed a supplier to identify a business.  It ceased to exist years ago and no doubt someone reading this will remember better than me the background as to why, and when.  Since its demise, the ability to identify a business that trades as a sole trader or partnership has been incredibly difficult, and the proportion of businesses on which the credit reference agencies are able to report is incredibly low because of the dearth of data available to them.  I know the VAT threshold is currently £79,000 so the smallest businesses wouldn't be picked up but it would still be a huge step forward.  According to HMRC, around 800,000 VAT registered businesses are not incorporated so making basic information available to credit reference agencies would at least enable a business's existence, location, legal status, and trade classification to be verified.

Of course we'd prefer to have financial information as well but let's keep our feet on the ground; that's not going to happen any time soon.  In the meantime, please let me know what you think (the ICM In-Brief newsletter published on 14 August will have a link to the document but it can also be found here so we can make HM Government aware of our views.

I'm off to Scotland for my summer break shortly and I'm grateful to Charles Mayhew, Sue Chapple, and Sue Kettle who've agreed to do me the honour of writing guest blogs while I'm away.  If you too are heading for some time of relaxation in the coming weeks then make the most of them.  This is the only time in the year when I genuinely turn off emails (despite what I may tell Mrs K at other times!).  I'll look forward to returning refreshed and re-charged.

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 - '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 - '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 - '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 - '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 - 'Whistling in the wind'

If you've read the latest (May) edition of the ICM's Credit Management magazine, you'll have seen mention of a survey finding that 42% of SME respondents had never heard of any of the current Government or bank-led initiatives to support small businesses. The recent news about funding through the Business Bank and the increase in length and breadth of the Funding for Lending Scheme is great news but only if businesses are aware of the help that might be available.

 

I was pleased that, of all the schemes, awareness was highest for Start-Up Loans. Regular readers of my blog will know that I'm privileged to sit on the board of Start-Up Loans and I know how much work has gone into raising public awareness, not least by James Caan (the Chair) who has used his personal profile and networks to such great advantage.

 

There have been numerous other initiatives supporting small business in recent times such as the National Loan Guarantee and Enterprise Finance Guarantee Schemes as well as the 17 introduced by the British Bankers' Association (BBA) Task Force in 2010. But none of these serve any purpose unless businesses, banks and others are aware of their existence.

 

One of the BBA initiatives was the creation of an independent appeals process for when loan applications were declined. Russel Griggs, who chairs this, has done good work and his reports show the effectiveness of the idea but I've seen recent examples demonstrating clearly that awareness is woefully inadequate.

 

I heard in the last few days from a business that had thrown in the towel after its current bank had withdrawn facilities despite a 37 year positive relationship, loan applications to other banks had been declined, and engagement with the Financial Ombudsman Service, MPs and numerous others had failed to have any impact. What astounds me is that at no point in this whole process was the business pointed towards the very appeals process that might have helped, or at least allowed it to understand the various banks' position.

 

Surely some of the parties involved would have heard of the appeals process and could have signposted to it? Not long ago I was at a presentation by a senior regional manager from one of the major banks and he was totally ignorant of it, so perhaps not!

 

In this age when we can communicate in so many different ways, and when instant communication is the norm, I find it sad and strange that getting important messages communicated and understood is so difficult. I guess it's incumbent on all of us to ensure we are well informed and up to date with what's going on in the business world and that we play our part in passing important messages on to those who might benefit from them.

 

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 - '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.

 

 

Guest blog by Charles Wilson FICM, Managing Director of Lovetts plc - 'Setting Clear Expectations'

Driving to work yesterday after the Easter holiday yesterday, I was listening to the Today programme on Radio 4. The meaning of the new Archbishop of Canterbury’s first Easter message was being debated. In his address, Justin Welby appealed to everyone to adopt realistic expectations for what institutions, or individuals, could achieve. In the end, all humans are fallible, he said. (I suspect even the new Pope might agree, who knows!)

Afterwards, commentators differed in their views. Was he sensibly advising us to manage our own expectations, including our expectations of him? Or was he abrogating, as one suggested, his own responsibility to give us a clear lead from the outset?

If you read the text of his sermon in full, it is pretty clear. He was urging us to be realistic in what we can all achieve, in these terms “Complexity and humanity are ignored, and we end up unreasonably disappointed with every institution, group and policy, from politicians to NHS, education to environment”.

In a time of economic uncertainty, and business difficulty, it is easy to think that others should, or even that we ourselves can, deliver a solution that is “perfect”. Whether you are a Prime Minister, a credit professional, or a business manager, in the end you always have to rely on others. You have to delegate a lot of things. You have to choose what NOT to do. You have to trust others, knowing they may fail.

Some business leaders never take holidays. I commend Philip King for doing so and hope he enjoyed his decorating over Easter. He is not abrogating his responsibilities to the Credit Industry, he’s not given up on us, or on Government, he’s just having a well-earned break!

In fact, it is only as we ‘let go’ of trying to achieve perfection, and subject our plans to human fallibility by sharing them with others, that our world enlarges through them.

As a lawyer, I could tell you all about the Jackson reforms of the legal profession, effective this week. Like the increase of the Small Claims’ limit to £10,000. But any search engine will give you more than enough to read on that.

Most important of all is that we set realistic expectations of what can be achieved by credit departments or third parties on their behalf. As lawyers recovering debt, we try our utmost, but keep realistic. If we don’t, we’re set to disappoint. Despite Government cutbacks, changes and reforms in the Court Service, we must nevertheless all keep trying to influence and effect change for the better. As Justin Welby said, “Setting people or institutions up to heights where they cannot but fail is mere cruelty”. I agree.

Extracts from Archbishop Justin’s sermon by kind permission of Lambeth Palace – see www.archbishopofcanterbury.org

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 - 'Re-arranging the deckchairs'

The report from Lord Heseltine released this week - No stone unturned in pursuit of growth - contains some interesting proposals. I'm writing these words within hours of publication so I won't pretend for a minute to have read and digested all 89 recommendations but I have scanned the chapter focusing on localism, and building on our strengths.

 

The report says we must 'reverse the long trend to centralism' and goes on to propose we should 'empower local places by letting them take the initiative to generate local growth, in partnership with central government', and 'we must ensure that the incentives and structures of local places are organised in such a way as to secure the greatest possible economic contribution, with each area able to play to its natural strengths.’

 

It's difficult to argue with this - local people should be more aware of the needs and opportunities in their area - and this should therefore be more effective than funding being handled, and activity controlled, from the centre. However, if the 29 current Local Enterprise Partnerships, and their predecessor Regional Development Agencies have demonstrated one thing, it is that some local organisations are better than others.

 

Lord Heseltine says ‘...growth is everyone's business. Government can set national policies and create an environment where business can flourish, but success depends on businesses and individuals working together. As we prepare for growth we must - each and every one of us - do all in our power to advance it. It is not someone else's problem.’

 

Good true words but if a local infrastructure is going to work as we all want, then it needs to deliver consistently well and effectively across all regions. If it doesn't, we're in danger of just rearranging the deck chairs under a new name.

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.