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

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

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

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

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

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Weekly Blog by Philip King, CEO of the ICM - 'Never underestimate the value of good credit management'

The Bank of England published its Credit Conditions Survey for quarter 4 of 2011 last week. In summary, it said that although lenders expected a small increase in overall credit availability in the coming three months, it will be impacted negatively by factors such as the economic outlook and tighter wholesale funding conditions. Furthermore, a key determinant of credit availability will be developments in the euro area and their impact on banks' funding conditions. It noted that demand was down across all areas but most significantly from small businesses where it fell sharply. I guess a succinct way of distilling the 17-page report down to a few words would be: a stagnant economy where lack of confidence is stifling demand to spend or invest, and where external factors could have a major effect!

I'm often reminded by our members - and I in turn remind government in meetings - that trade creditors lend more to businesses than the banks and - just as bank lending decisions impact on the ability of the economy to grow - so do the credit decisions of credit professionals. When they decline or accept an order or contract, they impact on the whole trade cycle for themselves, their customer, their customer's customer and so on either negatively or positively. That in turn impacts on the economy and its capacity to grow. In isolation of course, an individual transaction is probably not material, but cumulatively the impact is immense.

In my blog last week, I talked about showing and being proud of our professionalism - that professionalism is manifested in the decisions we reach throughout all credit management activity. Getting them right, whether we're dealing with multi-national corporations or individual consumers, is vitally important and we shouldn't underestimate the impact we have, not only on our own organisations but on the wider economic well-being.

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Weekly Blog by Philip King, CEO of the ICM -'Kill or cure the zombies'

On Monday the Financial Times ran a story with the headline "Institutions urged to kill or cure the zombies" which talked about "zombie" businesses, to describe those that can pay interest on their debts but has no viable means of repaying the principal over the long term. The article highlights the fact that many businesses are passed the point of no return but are staying afloat because of low interest rates, HMRC's discretionary Time to Pay arrangements, and/or banks keeping businesses in "intensive care" rather than allowing them to fail. It is little comfort to see a respected newspaper making the very same arguments that I have been saying for at least the last two years in my public assertions that there is a spike of corporate insolvencies waiting just round the corner. I recognise that it has taken longer to reach the corner than I anticipated but I continue to maintain that we are going to see a substantial increase at some point. Too many businesses are in a state of denial and it is only going to take a change in one factor to push them over the edge, be that the rent quarter day this week, a negative response to a request for an extension to the HMRC Time to Pay arrangement, an increase in interest rates, or another factor such as a large customer failing or failing to pay sufficiently promptly.

If you watched Dragons Den this week you might have seen the director of a twenty year old business seeking £100,000 investment to help his business grow. Upon questioning, it became apparent that the business had been loosing money in three of the last four years, had a very low balance sheet net worth and, if current forecasts were met, would be technically insolvent at the end of the current financial period. The argument that sales next year would be much better and would see a return to profit seemed to have little substance and, not surprisingly, there were no takers among the dragons. It's obviously difficult to see the whole picture from a few edited minutes on TV but the scenario of a business thinking tomorrow will be better without realising the reality of its financial situation today is not uncommon.

In the FT article, Christine Elliott, Chief Executive of the Institute of Turnaround said "she would like to see institutions that have potentially viable businesses under their care change their mindset. They should either recognise non-viable businesses and deal with them through insolvency or put in place a transformation plan to achieve their potential". We credit professionals have a very similar task: to recognise viable businesses and help create profitable sales for our own organisations, and to recognise non-viable businesses and ensure exposure is minimised. Sometimes we to have to decide whether to kill or cure the zombies.

Weekly blog by Philip King, CEO of the ICM - A Real Credit Community

It's fair to say that this week has been one of highs and lows.

On Wednesday I attended a funeral following the untimely death of the husband of one of our Advisory Council members. Since the sad news was shared I've been overwhelmed by the messages of support demonstrating how caring and compassionate this credit community is. Sometimes, indeed, it takes a tragedy to make us realise just how fortunate we are, and it makes me proud to be leading an organisation that is so much more than 'just' a professional body.

Talking of the credit community I attended the inaugural conference of ICTF (Association of International Credit & Trade Finance Professionals) in Brussels. The conference very definitely seemed to deliver on its promise and it was good to meet with my colleagues on the international stage and be introduced to a number of people for the first time. The ICTF has got off to a most promising start and I look forward to working closely with them as they continue to evolve.

Continuing with the 'highs', there was considerable excitement with the 0.8% rise in GDP, a quarterly jump that was twice as fast as forecasters as predicted. I consider myself a realist so don't want to dampen the enthusiasm but perhaps this rise is telling us something? Perhaps it is saying we should take heart, and be encouraged by such positive news. But it might also be saying not to get too excited, since the cuts imposed by the spending review have yet to be felt.

In the circumstances, it's almost impossible to forecast with any degree of accuracy (the only consistency in forecasts is that they're generally proved to be wide of the mark!), so we are in uncharted waters. As such, we should continue applying all the principles we know are right to manage cashflow effectively and sustain our businesses. http://www.icm.org.uk/

3rd Weekly Blog by Philip King, CEO of the ICM - Pointless Bank Activity

In the Daily Telegraph on Tuesday, the Telegraph Business Club Editor James Hurley reported on a move by some of the major banks to have the creditworthiness of their business customers independently profiled in an attempt to defuse the row over small businesses' access to finance.

Now I'm generally supportive of banks. I don't want them to lend money to businesses that aren't creditworthy (that is, after all, how we got into this mess in the first place), and I understand the obvious dilemma of being under pressure to repair balance sheets AND lend to small businesses.

This though is disingenuous. Historically, the ICM has always fought against the raising of thresholds for modified accounts. But we all know that most small businesses file modified, abbreviated, or unaudited accounts as it is. Indeed some of them fail to file any form of accounts at all, so the outcome of this exercise is inevitable. The businesses banks won't lend to have poor credit ratings so their decisions can be easily justified!

What would be far more beneficial is if the banks spent time and energy in helping to educate and encourage small businesses to provide management accounts more readily so that more genuine, better informed decisions can be made. Transparency will, of course, be essential, and honesty on both sides would be welcome.

As I told the Daily Telegraph, I'd rather the banks were campaigning for provision of information rather than embarking on what to me seems a pointless and futile exercise.

If you'd like to read the full article click: http://www.telegraph.co.uk/finance/yourbusiness/8000675/Report-on-bank-small-business-lending-decisions-a-pointless-exercise.html

2nd weekly blog of Philip King, CEO of the ICM - skills and risk

A few days ago, Rebecca Smithers, consumer affairs correspondent of The Guardian wrote that British manufacturing is at risk of 'collapse'. The reasons she cited included a worsening skills shortage that will leave thousands of hi-tech jobs unfilled over the next five years. More recently, a leading academic also stated that it is not just in the high-tech industries that skills are missing. He warned that all areas of business need the right, relevant skills to be successful, and this includes skills in credit management.

It is comforting to know, I hope, that there are organisations out there - the ICM foremost among them - who take such warnings seriously. The successful and ongoing development of our qualifications, and our work with employers, practitioners, and industry is aimed at ensuring the industry becomes more professional, and that the right skills are available to help Britain through the recovery.

The property and environmental services giant Connaught has collapsed into administration, putting thousands of jobs at risk. In June, the company warned that public spending cuts, designed to reduce the government's budget deficit, would impact 31 projects, reducing its revenues by £80m this year. This hit, it said, "would push the company into the red." Public sector cuts are going to hit businesses across all sectors, and many of those will be our customers.

In another annoucement that links closely with this theme, I note that the "time to pay" scheme has now reached its peak as HMRC appears to be rejecting an increasingly large number of applications to take part in the initiative. "Time to pay" allows businesses to defer tax payments during the recession. Syscap, an independent finance provider, says that in the last few weeks, a good many businesses have been in contact to secure loans to meet tax obligations either becuase HMRC has rejected their application to the scheme or because they have taken a business off the scheme. Perhaps this should not come as a surprise, but credit professionals are going to see their customers under greater cashflow pressure as a result, and the number of insolvencies is likely to rise as I've been predicting for several months now. Knowing our customers - and their customers in turn - is going to be more important than ever in the months ahead. Close monitoring of risk will enable creditors to take action to avoid or at least minimise potential bad debts.

1st Weekly Blog from Philip King, CEO of the ICM

There were two announcements in the last few days that especially caught my attention. The first was by the Forum for Private Business (FPB) who had submitted a freedom of information (FOI) request asking police forces how quickly they processed payments in the 2009/10 financial year.

It revealed companies in some parts of the country had to wait more than two months for payment from their local force. Companies doing business with the police in other areas, however, were paid in a matter of days.

Now there is nothing new or surprising in this. Across all industries and sectors, there are differences in practice and experience and I bet even those paying promptly end up paying some suppliers quicker than others.

The reason those suppliers get paid more quickly than others is similarly no secret. It comes down to having good credit management practices. Getting the basics right, such as ensuring the invoice details are correct and building personal relationships between departments is key to getting paid on time. Some practice is ingrained and part of the business culture, but other skills can be taught, and this is our role.

The second piece of news I read was in the Independent. It announced that one in 10 northerners 'will be jobless in the next 5 years'. A leading economics think-tank predicted that unemployment is set to breach the psychologically important 10 percent level over the next five years - but only in the north of the country.

Unemployment is bound to grow and - while it may be worse in the North - it's going to affect all areas, particularly as the public sector cuts bite. One impact will be the emergence of more sole traders who see redundancy as an opportunity to leave the world of PAYE and strike out on their own with their redundancy cheque firmly in hand. As suppliers, we should be prepared to give them good advice that will help their business survive the first critical 12 months. We could do worse than point them to the Managing Cashflow Guides at www.creditmanagement.org.uk

Meanwhile closer to home, the ICM exam results came out last weekend. As with the 'A' level students, some learners will be delighted with their performance and others devastated and disappointed. Studying while maintaining a career is never easy and they deserve our congratulations for their commitment (whatever the result) and our support. They are the credit professionals of tomorrow and will help raise the standards of what we do.