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 - 'Neither borrower nor a lender be?'

I was in Basel earlier this week for the ICTF Conference. It's always a good opportunity to catch up with credit professionals from around Europe and beyond, and great to hear some of the issues being faced and how they're being addressed.

 

Flights and travel gave me the opportunity to read the FCA's recently published consultation: 'Detailed proposals for the FCA regime for consumer credit'. We'll be providing the opportunity for members to submit comments through our November ‘In Brief’, and I won't go into any detail on the 193 pages, nor the 387 pages of the Appendices here. I do though want to make just one comment about the FCA's stated intention to focus on the Payday Loans sector.

 

I've written several blogs over recent months arguing that the OFT should, in its final year, take action over the absence of evidence that affordability tests are being adequately carried out by payday lenders. I've consistently asserted that this is the key failure of the market and should be addressed with vigour. It should, after all, be the determinant in all credit decisions regardless of sector, size or nature.

I've given up hoping that the OFT is going to take any serious action on this in its final days but I was encouraged to read these words in the consultation: "Our proposals.........are based on the principle that money should only be lent to a consumer if the consumer has the ability to repay and in a sustainable way." And in his foreword, FCA Chief Executive Martin Wheatley says: "The OFT affordability guidance is good, but the OFT’s own research shows too few firms implement it. We will put it into our rules and guidance, and enforce this."

 

Martin's last two words are the most important - let's hold the FCA to account and ensure it delivers.

 

 

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 - 'Stepping out of the bath'

After the good personal news I shared in my blog last week, there's been some heartening news on the economy this week.

The CBI's latest quarterly poll shows that the services sector, which accounts for two thirds of the UK economy, is growing at its fastest rate for six years. Last week, the Office for National Statistics lifted its second-quarter estimate for GDP growth from 0.6 per cent to 0.7 per cent. The EEF, the manufacturers' organisation, said that for the first time more members were reporting that the cost of new borrowing lines was falling than those reporting it was rising. The Bank of England's Deputy Governor suggested the Bank was sending a 'clear signal' that interest rates would not be raised any time soon reiterating the commitment made early in his reign by the new Governor Mark Carney.

 

The editor of our own magazine, Credit Management, drew attention to a number of other positive indices in his column in the September issue which hit doormats at the end of last week so perhaps the CBI is right in interpreting their numbers as evidence of a further build-up of momentum. Certainly, the conversations I'm having with businesses and organisations suggest an underlying sense of confidence that was missing a few months ago.

 

Few people seem to be overly buoyant but they do at least seem to  be moving from A glass half-empty to glass half-full mentality. In the early days of this recession when the debate was raging as to whether it would be V or U shaped, I remember one economist saying it would be bath-tub shaped, with the economy bouncing along the bottom for a prolonged period. It was a description I shamelessly stole and has proved to be pretty accurate.

 

I don't think we're off the bottom yet but I think we're looking upwards now rather than constantly looking behind us, and it does feel like momentum is building. Knowing how important confidence is to achieving recovery, let's do our bit by talking ourselves out of the bath tub.

Guest blog by Sue Kettle, Director of Membership and Support Services of the ICM - 'Love and Passion? Can this really be credit management?'

As Philip’s guest blogger, I deliberated long and hard on the theme and title of my blog. Would it be appropriate? Will it be taken in the context it’s meant? 

 

It didn’t take me long to feel at ease when I spotted a recent discussion posted on LinkedIn by a fellow colleague entitled ‘I love…’. With a smile and no real surprise I began to read the responses to the post that confirmed my thoughts. “I love the challenge” and “I love making a difference” to quotea couple.

From day one of joining ICM, and for the past 14 years, it has been so apparent from conversations with our members that the passion, commitment and excitement for credit management is boundless.

 

My early career was spent in a variety of industry sectors and I can honestly say the only passion and love I ever saw in those days was from an 11 o’clock diet coke break or an early finish.

 

One story that has always stuck with me, and I won't mention any names, was during my early days in membership when an individual who as applying to become a Member, who was so passionate about his job and his enthusiasm to join the credit community, he felt the need to call me from the bath to tell me he had reduced the companies DSO to 12 days, would this contribute to him achieving recognition as a credit professional?  To this day, he is now a long serving Member, I can't look at him with a straight face!

 

I feel, from my experience, I can honestly say credit professionals love their jobs with a passion and they are a breed that are not precious about their knowledge they have a longing desire to share and help others develop in the same way they have.

 

To all in the credit community let's nurture the professionals of the future to continue this infectious passion.

 

Yes, this really is Credit Management.

 

Sue Kettle

Director of Membership and Support Services

 

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 - 'The case of the pickled onion'

I belong to a Vistage Chief Executives Group which provides its members with the opportunity to hear expert speakers, to share issues with other Chief Execs from different unrelated sectors and industries, and coaching. I attended a session yesterday with a workshop on negotiation run by Malcolm Smith.  He was one of the best speakers I've heard and his style, passion and energy were very impressive.  A couple of things seem worthy of mention.

We hear a great deal about large retailers exploiting smaller suppliers by demanding long and extended payment terms, and one of the things I always say is that this behaviour isn't restricted to the issue of credit. Buying power will manifest itself across all areas including credit terms, margin, price, rebates, packaging and so much more.

Malcolm shared a story from earlier this decade about how a supplier in the US was put out of business by the behaviour of a large retailer.  I don't want to go into too much detail here but, in essence, a small supplier won a contract to supply the retailer with its pickled onions which would retail at their almost standard price.  Buoyed by the prospect of massively increased sales, the company expanded by setting up new processing plants and scaling up to meet the expected demand and everything went well.  Two years later, after a process involving merchandisers, auditors (who were on the supplier's site for eighteen months), and procurement experts, the selling price was reduced to less than half and the quantity for that price was increased from a small jar of a few grams to one the size of an aquarium that was too big to carry in one hand and was branded as a 'gallon jar of pickles for $2.97'.  Not surprisingly, we were told, the company went out of business and I guess it's a case of the classic ‘if it sounds too good to be true, it probably is’.

I understand how difficult it must be to resist the demands of a large customer when that customer might be the gateway to a brilliant future but, if the ultimate price is too great, what's the point?  I've been quoted frequently saying that businesses shouldn't just roll over.  First say no, then get back to the table and negotiate what can be obtained in return, before finally walking away if that's the only option.  Accepting business, however good it seems, at suicidal terms can only be a recipe for disaster.

One of the things Malcolm talked about yesterday was the need to have a list of ‘tradables’ that could be introduced to prevent the negotiation being only about price.  I was delighted that one of the key ‘tradables’ on his list was payment terms – "yes, I can reduce the price by x% if you guarantee to pay me within 14 days rather than your standard 30, 60, or 90 days".  The thing he clearly understands that so many businesses, politicians and others do not is that payment terms are as much a part of the overall business transaction as price, colour, delivery or anything else.  When payment terms are left to be discussed after everything else has been put to bed, the only loser is likely to be the supplier!

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 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 - 'Leading by example'

There's been much talk in recent months about mentoring as a tool to increase the survival and growth rate for businesses, and I make no apology if this week's blog reads a bit like a commercial!

In July 2011, the mentorsme web portal http://www.mentorsme.co.uk/ was launched as an online gateway to mentoring services for SMEs. It was one of the 17 initiatives coming out of the British Bankers' Association's Business Finance Taskforce, and this was followed in November 2011 by an announcement by BIS that new grant funding of £1.2m was being made available to recruit and train 10,000 volunteer business mentors through the Get Mentoring project run by the Small Firms Enterprise Development Initiative (SFEDI).

Over 3,000 volunteers have already signed up for training and, as the BIS funding is only available until the end of March, the ICM was asked last week to promote SFEDI's new online training which is now available at http://www.getmentoring.org/. This online platform will make it easier for business people to get involved and benefit from training that will help them develop the skills to become effective business mentors.

In the recent press release, Mark Prisk said: "Get mentoring is about businesses helping each other to succeed." The release went on to say that mentoring has been shown to increase the survival and growth rate for businesses, and can be a great way of boosting capability and capacity within a sector or supply chain. It can aid the professional development of both parties, enhancing leadership and management skills and improving soft skills (eg business confidence and aspiration) and business performance (eg turnover and profit). Mentors must be willing to offer at least one hour per month free to their mentee(s).

As credit professionals, many of us deal regularly with SMEs, and getting involved in this way could enhance our outlook and understanding of business generally, and especially the challenges faced by smaller businesses.

If you think you might have the necessary skills and experience to become a mentor, why not sign up today at http://www.getmentoring.org/ and start making a difference. I have.