Weekly Blog by Philip King, CEO of the ICM - 'Changing the mindset of start-ups'

I've had some interesting meetings this week with BIS officials and Ministers, and other organisations, talking about late payment. No doubt you'll have seen David Cameron's announcement in October that a consultation was going to be launched looking at the issue, and I mentioned it in this blog column a few weeks ago.

One of the meetings was a round table involving a large number of organisations looking for practical steps that might help SMEs to manage their cashflow better. There's no doubt that the required change in culture that I often refer to is needed throughout the supply chain. Big businesses need to take a responsible approach in dealing with their suppliers, and smaller businesses need to apply basic good credit management principles.

Therein though lies the challenge. For many micro businesses, cashflow only becomes important when it runs short, and that's no surprise. If I'm trying to start a business, I'm bound to be more worried about finding customers and delivering my service or product than I am about such things as agreeing payment terms, invoicing accurately and promptly, and chasing unpaid amounts.

But this is what needs to change - we need to make the mindset of start-up businesses one that recognises the importance of cash from day one, that applies the basic principles that credit professionals understand so well. Unless that happens, too many businesses will never grow beyond the micro stage and too many businesses will fail. So what's the answer? I am not sure I know - I wish I did - but I'm glad to be engaged in the debate and to be working with others in looking for solutions.

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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

Guest Blog by Professor Russel Griggs OBE - 'Leave to appeal'

Twelve months ago I published a report as the independent external reviewer of a Banking Taskforce initiative into the new ‘appeals process’ – a process by which small businesses (up to a turnover of £25 million) could appeal if declined lending from their bank.

 

In the first year of the process there were 2177 appeals and 39.5% of decisions were overturned. (An overturn is where the bank and the customer reach a satisfactory conclusion to a lending application.) This does not mean that the business has received exactly what they asked for initially, but that they have reached a lending agreement with which both parties are satisfied.

 

At the time I was quite satisfied with the numbers, given that the process was still in its infancy. I said then that banks and all other parties and bodies involved in working with SMEs needed to do more to ensure that their business customers knew that the right to appeal was available, and that the true effectiveness of the scheme would be apparent only when the process had been more widely promoted. I said also that the banks needed to make sure that those who lend are properly qualified and trained to do so, and that the reasons why a loan may be declined need to be properly communicated and understood.

 

Next month I will publish my second Annual report and while further progress has undoubtedly been made, there are clearly still issues with the extent to which the appeals process is being promoted, both externally and within the banks themselves.

 

The ambition with the process was to encourage and engender a better dialogue between customers and the banks, and my report will show to what extent this is now being achieved. My report will also look at the key reasons why loans are being declined – both through credit scores and issues of ‘affordability’ – and what progress is being made to better understand the banks’ scoring system and the role of external credit reference agencies.

 

The ultimate objective is to make the lending environment for SMEs operate as smoothly as any lending environment ever can or has. We will soon see how far we have travelled in reaching this objective.

 

Professor Russel Griggs OBE

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.

 

Guest blog by James Caan - 'The certainty of payment'

Cashflow, as every entrepreneur will tell you, is the lifeblood of business. But despite this simple truth, the challenges that all businesses – and especially smaller business – face this year and every year, is how to keep the cash flowing? This is especially challenging when it seems that every barrier is being put in your way to stop you from getting the cash you not only deserve but is yours by right.

 

The basics are, of course, to invoice on time, promptly and accurately. They are to ensure that your quote has been accepted, the product or service delivered, and the terms and conditions of payment agreed in advance. If you do nothing else but stick to these simple rules, then your business will not only survive, but it will actually have every prospect of growing and contributing to the economic recovery that we so dearly seek.

 

And there is more that you can do. The Government is keen on encouraging the banks to lend, to support businesses through the good times and the bad, but overdrafts or loans are not the only ways of ensuring you have the cash you need, when you need it. Alternative funding mechanisms such as factoring and invoice discounting rarely deserve the negative publicity they are inclined to attract, and Supply Chain Finance – a particular favourite of Government in 2012 – also has its place for certain companies at certain times.

 

Knowing your customer is a particular mantra of the Institute of Credit Management, and again the tools at a company’s disposal – from credit reference agencies to credit insurance – all have a role to play not just in protecting you from the damaging impact of not getting paid, but more positively in taking on new customers and even new markets, safe in the knowledge that you are better informed.

 

Much was written last year about naming and shaming the poorest payers, but there is so much that a smaller supplier can do to bring about the certainty of payment. As professionals, it is incumbent upon the ICM and its Members throughout 2013 and beyond to ensure that the support is there for these companies when they need it most.

 

To read the full press release click here.

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

Notwithstanding the Chancellor’s Autumn statement, and the undoubted noise that will follow, I’d instead like to reflect on a couple of reports I've read recently.

 

The first is the SME Finance Monitor (Q3 – 2012) produced for BIS that was published last week. I was struck by a couple of things. Only 46% of SMEs were aware of any of the Business Finance Taskforce initiatives with 22% aware of the Enterprise Finance Guarantee Scheme, 18% aware of the National Loan Guarantee Scheme, and 21% aware of the network of business mentors. Given the amount of publicity and airtime generated during their launch in 2010, these statistics are disappointing.  Even more interesting was the lack of confidence SMEs have in availability of finance.  Overall, only 33% were confident that their bank would agree to their request for finance (the lowest level seen in the six surveys to date), and yet the outcomes are markedly better.  The success rates for renewal applications are c90%, compared to 53% who were confident ahead of the application and, for new applications, the success rates are c56% against a confidence level of 21%.  Both of these aspects show how much more needs to be done in raising awareness.

 

The second is a report written by Duncan Cheatle, who I've met through my involvement on the Board of the Start-Up Loans Company.  Duncan is CEO of Prelude Group and has authored; 'The Unsung Heroes of Business'.  This report tells the story of seven entrepreneurial businesses and analyses their tax accounts.  It shares the views of their owners about taxation, their attitude to it, and their recognition of the value they add to the economy and society through the contributions of their businesses.  The foreword talks about ‘the perpetuated myth that successful business owners are the sole and selfish beneficiaries of the fruits of their business's output’ and delivers the message ‘that we need to do all that we can to encourage and support the relatively small cohort of business innovators who drive value into our economy and make such a significant and mostly overlooked contribution to public finances in the UK.

 

It's a refreshing read at a time when Starbucks, Amazon, Google and others are in the headlines for all the wrong tax reasons.

Weekly Blog by Philip King, CEO of the ICM - 'Always read the label'

So David Cameron met with some of the country's largest companies this week and urged them to support their smaller company suppliers by engaging in Supply Chain Finance.  The scheme uses the creditworthiness of the big company customer to allow the smaller supplier to obtain funding at lower cost secured against invoices that have been approved for payment.  It's often called reverse factoring, and one of the biggest advantages is that - since the buyer has confirmed approval of the invoice - there is no recourse.

 

The downside is that there are significant IT and administrative costs and it will only work in circumstances where the customer/supplier relationship is ongoing with regular transactions.  Perhaps the bigger risk is that large customers will be able to dictate longer payment terms justified on the basis that they have an arrangement whereby the SME can be paid faster.  But that, of course, will cost the SME interest which flies in the face of the culture we want to see, where payment terms are set fairly, and adhered to, in a climate where paying on time is the norm rather than the exception.

 

I'm not as scathing as some commentators about the scheme - there are circumstances where it is a great solution and can work really well – but it certainly isn't a panacea, and nor a one-size-fits-all solution.  I'd like to think that, while our Prime Minister had these business leaders in the room, he also asked those who hadn't signed up to the Prompt Payment Code why they hadn't done so.  In a week when Sainsbury's is being lambasted for extending payment terms for non-food suppliers to 75 days, we need to be encouraging good practice that enables SMEs to have certainty about payment expectations.  Supply Chain Finance has its place but there's no substitute for agreeing fair payment terms and sticking to them.  We need more businesses to lead by example, and we need our leaders to put pressure on them to do so.

Philip King, CEO of Institute of Credit Management (ICM) - 'Judge or Jury'

I had the privilege of sitting on the judging panel last week for the SME category of the National Business Awards. It was the first time I've been a judge where the nominees have to present a 'pitch' and it was a fascinating experience. I've always wondered what it felt like to be a dragon in the den, and I guess this is the closest I'll ever get to finding out!

There were 12 entries and we spent a long day listening to a series of presentations from a range of very diverse businesses. It was inspirational hearing from people who have turned an idea into a business that is thriving and, in some cases, hugely successful in a very short space of time.

The common theme, certainly among the front runners, was unbridled energy and enthusiasm and a passion for a business that entrepreneurs saw as 'their baby'. If those qualities could be replicated and reproduced across business, it's hard to believe we'd still be struggling to see the recovery for which we all yearn. So often, the idea was simple and certainly not rocket science. As a judge, I was left thinking why somebody else hadn't thought of it before and wishing I had a more creative mind that could spot what seemed like obvious opportunities once somebody else has pointed them out!

The Start-Up Loans Company in which I'm involved has now started lending and, at the Board Meeting this week, we were hearing examples of young people who are determined to turn an idea into a successful business and - judging by their determination - will do so.

On the political front, we've heard Vince Cable's announcement about the new Government-funded bank to support SMEs. The devil, as always, will be in the detail but I certainly welcome the plan to bring together in one place Government finance support for small and mid-sized businesses. As I've said here recently, the multiplicity and complexity of schemes often results in them almost working against each other so if the new bank helps to simplify and de-clutter the landscape, it can only be a good thing.

It was good to meet Michael Fallon, the new Business Minister, this week and I'm at the Labour and Conservative conferences over the next two weeks. It will be interesting to hear what the parties have to say at this mid-way point of the current Government.

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

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

 

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

 

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

 

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

 

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

 

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

Weekly Blog by Philip King, CEO of the ICM - 'Watching and learning'

I attended my third Start-Up Loans Company Board Meeting this week, and it was a masterclass.  If you've read James Caan's autobiography, you'll know that he attributes much of his success in the recruitment sector and subsequent businesses to his skill at asking questions, teasing out meaningful responses and, as a result, choosing the right people.

As each director presented an update on what had been achieved in their area of activity since the last board meeting and set out their key challenges, it was fascinating to observe him use questions to unearth underlying themes, and then use further questions to identify the priorities for the month ahead, and commitment to getting them achieved.

It's difficult to pinpoint the specific techniques or words used, hard though I tried since I always like to watch and learn from people I meet.  I guess it's more of an inert talent that just seems to work, and it's amazing to watch in action.

Individuals aside, the progress made in the last 60 days is incredible and the next 60 days are going to be really exciting as Start-Up Loans become available and the scheme fully operational. Watch this space for more details to follow and, in the meantime, I've been reminded of the power of people-watching and learning. I'll keep hoping that some of the positives rub off on me now and again!

To find out more about the Institute of Credit Management visit www.icm.org.uk or follow Twitter Http://www.twitter.com/ICMorg and http://www.twitter.com/philipkingicm

Weekly Blog by Philip King, CEO of the ICM - 'The power of collective action'

I blogged a couple of weeks ago about the impact we can have as individuals and the responsibility that carries with it. Developing that thinking, I've been reminded this week of the collective power of individuals coming together with a collective aim. Winston Churchill is oft quoted as saying: ‘Never doubt that small groups of people can change the world. In fact it’s the only thing that ever has.’

I attended my second board meeting of the Start-up Loans Company this week and James Caan has pulled together a formidable group of people, allocating responsibility for particular aspects of the programme to each director. In four weeks an amazing amount has been achieved both individually and collectively by a group of people who believe in the benefit of what is being delivered and are committed to making it happen. We are at the start of a really exciting journey and I believe the concept and reality of Start-up Loans is going to be a huge success about which I'll no doubt write more in the months ahead.

When I look around the membership of the ICM, I see similar stories every week. A group of people come together as a branch committee, for example, and deliver events for local credit professionals that educate, energise, and motivate them to deliver more as individuals and for their organisations. At ICM HQ, following our restructure in January, I see the team working together with members and other stakeholders to deliver quality events for the wider credit community; in the last couple of weeks alone, I've witnessed this at our Regional Roadshow in Cardiff, the QiCM Best Practice Event at Reading, the Fellows' Lunch and Graduate Reception in London, and the Education Conference in Birmingham.

To close with a further quotation, this time from Aristotle: ‘the whole is more than the sum of its parts’. Working individually and collectively, we can make a real contribution and make a real difference. That's what our credit community is all about.

Weekly Blog by Philip King, CEO of the ICM - 'Pomp and circumstance'

Well, my wife Mary and I celebrated our 34th wedding anniversary last weekend. Although our celebrations didn't quite match up to those of the Queen's Diamond Jubilee, we nevertheless had a great time and it was good to have an extra couple of days off!  The royal pageantry was amazing and impressive, and I confess to being mesmerised by the way images were projected onto Buckingham Palace during Monday's concert. Even on television, it was simply awesome, and it was certainly one of the weekend's highlights for me.

On a more everyday subject, I was interested to read the report about bank loan appeals last week.   Professor Russell Griggs, who I know well, was appointed independent arbitrator under last year’s Project Merlin pact between Government and the banks, with a remit to adjudicate when companies with sales of up to £25 million feel that they have been unfairly refused credit.  Most appeals were from retailers, construction companies, restaurants and hotels complaining about limits placed on overdrafts or credit cards. Half of the amounts in dispute were sums of less than £5,000, although a few were higher than £1 million.  During the first year of the scheme, 114,000 applications (14 percent) were declined by the Taskforce banks, of which 2,177 were taken to appeal.  Of these, the report reveals that 39.5 percent were successful.

Professor Griggs says he thinks the numbers are reasonable, given that no one had any idea how many appeals there would be, but that the banks need to ensure all customers know they can appeal, which not all do currently and that needs to change.  He adds the suggestion that, if more knew they could appeal, there is a possibility more might apply for credit in the first place.

That is perhaps one of the most worrying comments in the whole report.  My experience of talking to many SMEs is that there is limited awareness of the appeals process, even from companies who genuinely believe they, or their financial numbers, have been misinterpreted by a banker.  We can all play our part in making small businesses aware of the process, details of which can be found at: http://www.icaew.com/~/media/Files/Technical/Business-and-financial-management/SMEs/BBF%20Factsheet%20Appeals%20Process.ashx

Weekly Blog by Philip King, CEO of the ICM - 'Putting the lifeblood back into business'

The highly regarded Ernst & Young Item Club came out at the weekend with a forecast growth for the year of a dismal 0.4%. Although Item Club uses the same economic models as the Treasury, its forecast was much worse than the Treasury's a few weeks ago. Speaking on Radio 4 earlier in the week, its commentator attributed this largely to timing and the dynamic nature of economic factors. The Club says Britain's economic growth will remain anaemic because companies are hoarding their cash, and it will stay on the "critical list" until companies start spending again.

I talk to many businesses of all shapes and sizes and the vast majority tell me that they are struggling to find customers who are willing to spend or make significant investments. This is a feeling particularly prevalent among the SME community whose fundamental priority seems to be one of survival rather than planning for growth or expansion. We're all waiting for real signs of recovery before we can start to feel confident, and until confidence returns we won't want to spend or invest. Until we do, however, "Britain's economic growth will remain anaemic because companies are hording their cash, and it will stay on the "critical list"......" (see above). It seems like the classic vicious circle to me!

There is one thing that companies could do though that would generate cash-flow for the whole business community and would definitely aid economic recovery. Pay their bills on time! Some do, and there are examples of really good practice, but many - big and small - don't, and because of that their suppliers struggle for healthy cash-flow and in some cases fail to survive. The Prompt Payment Code hosted by the ICM for BIS was launched to help change the culture to one where paying on time and to the agreed payment terms was the norm rather than the exception. Well in excess of a thousand organisations have signed up to the Code but many more could do so.

Paying on time has many advantages: it releases money tied up in unpaid debtors; it allows business owners to focus on selling and providing a better service rather than chasing payment from tardy customers; and ultimately it helps more businesses to survive and prosper. The Prompt Payment Code can be found at http://www.promptpaymentcode.org.uk/.

Weekly Blog by Philip King, CEO of the ICM - 'Towards a better future'

This will be my last blog for 2011 so I'm pleased to focus on a couple of real positives.

First, congratulations to Martin Lewis for passing the 100,000 signatories threshold with his petition to make financial education a compulsory part of the school curriculum. The milestone is significant because it means the subject must now be discussed by Parliament, and it's an important subject well worth debating.

The report generated by the All Party Parliamentary Group on Financial Education for Young People says that "two-thirds of people in the UK feel too confused to make the right choices about their money and more than a third say they don't have the right skills to properly manage their cash". If we allow children to leave school without the necessary skills to manage their money we are going to reap the deserved harvest in years to come. As credit professionals we know only too well the impact of over-indebtedness and that is why the ICM has encouraged its members to engage in the DebtCred project delivering financial education to 14-19 year-olds.

DebtCred is just one initiative and there are numerous similar projects, materials and voluntary activities all with a similar aim and many accredited by pfeg (Personal Finance Education Group) that exists to help schools plan and teach financial capability. A huge amount of good work goes on but it is all ad-hoc and dependent upon the willingness and appetite of individual schools and indeed teachers to engage. When financial education is a compulsory part of the curriculum, all children will receive training in what is a vital skill. I've heard the argument that there is little point in addressing financial education until basic numeracy and literacy skills are adequately addressed. Of course that is true, but the two are not mutually exclusive; even someone who can't read or write has to manage their money, and both should have focus within the curriculum.

Secondly, the Forum of Private Business has been engaging many organisations in preparing a letter to Mark Prisk, the Business Minister urging government to have a clear and detailed plan to address the issue of late payment which can, and all too often does, cripple a small business. The Institute is a co-signatory to the letter and it suggests a number of specific actions that might be taken.

Government has done some good things with its Prompt Payment Code (hosted and administered by the ICM), and its current Finance Fitness campaign but more needs to be done and it needs to be done more cohesively. I'm writing these words shortly after being interviewed on BBC Radio 5Live Wake up to Money and my message is clear. Government needs to recognise late payment for the issue it is and formulate a plan to address it. The business culture needs to change such that paying on time is the norm rather than the exception. But businesses themselves have to be smarter at getting the basics of credit management right, and we credit professionals need to be willing to share our skill and expertise so that our customers can deliver cash for their businesses just as we deliver cash for ours.

The recently launched ICM Online Services (icmOS) SME Collection Toolkit is an attempt to provide a practical tool to achieve that aim.

The ICM press release can be found here, the FPB release here, our Managing Cashflow Guides here, and the icmOS SME Collection Toolkit here.

If you would like to listen to Philp's interview on BBC Radio 5Live click here.

I hope 2011 has been a good year for you and - after some relaxation time at Christmas - I hope 2012 will be even better. See you next year!

Weekly Blog by Philip King, CEO of the ICM - 'Late Payment thinking that is back to front'

I spoke at a conference organised by the AFDCC (the French equivalent of the ICM) last Friday in Paris. It was a good event held in a very impressive venue and about 150 delegates assembled to hear about and debate, amongst other things, the new EU Directive on Late Payment. One of the keynote speakers was Barbara Weiler MEP, an architect and key driver of the new Directive. Her passion for the benefits on business of improving payment terms is not in doubt and her energy has clearly been instrumental in getting the Directive adopted.

The recent survey of ICM members conducted by Equifax showed that 65% of respondents believe the Government should do more to protect small businesses from the negative impact of late payments, and there can be no argument that the existing legislation has not worked in the way intended. Businesses, and particularly small ones, are either ignorant of the law, don't know how to use it, or are afraid to do so for fear of losing a customer. There are exceptions of course; I know credit professionals who use it very successfully and mitigate the cost of financing extended credit by so doing, and I know others who generate a late payment 'charges and interest' invoice to accompany the first collection letter very effectively.

Primarily, the real financial benefit comes when legal action is taken and the late payment charges and interest are added to the principal debt and can significantly increase the amount recovered. But that was never the point of legislation - it wasn't intended to make for better recovery at the end of the food chain; the idea was to improve payment behaviour from the start!

Unfortunately, politicians often seem to miss the point of what happens in the real business world and this is no exception. The Directive states that, if payment terms are not agreed in the contract, then the assumed terms shall be 30 days and - if payment terms are set out in the contract - they cannot be 'grossly unfair'. The definition of 'grossly unfair' is unclear but, in any event, how many small companies would be willing or able to take legal action to argue the case and get remedy? The inclusion of a clause allowing a supplier to recover reasonable actual debt recovery costs (in addition to interest) rather than just the current standard late payment charge is positive but is again a back-end benefit, not a front-end incentive to change payment behaviour.

For me, the most encouraging thing in the whole conference was Barbara Weiler saying that the Directive is as much about changing the culture of payment through soft issues as it is about introducing hard legislative measures. The UK has been lauded for its Prompt Payment Code (administered for BIS by the ICM of course) and educational activity like our Managing Cashflow Guides are also recognised as leading the field. As credit professionals we have more opportunity than most - and should use it - to influence that change of culture by adopting credit management best practice. We can and should be more powerful and effective than a Directive and if the Directive gets more attention and visibility for the importance of cash-flow management and the value we add to businesses, then - for that reason alone - I welcome it.

The Prompt Payment Code

Institute of Credit Management Press Releases

Weekly Blog by Philip King, CEO of the ICM - 'Wake up and smell the coffee'

When I stay in London, I often use a hotel near Swiss Cottage. It's on the Finchley Road, located in a typical suburb of the capital, its street lined with shops. Over the last few years, I've noticed something that was brought home to me on Monday.

Within about half a mile, there are a number of fast food establishments, some long established cafes and restaurants and a couple of Costa Coffee shops. There are also a couple of independent coffee shops with the usual comforts. One of these closed down a few months ago and was emptied; it has now been replaced by another one that - if you hadn't seen the empty shop in the interim - you could mistake for what was there before.

Further down towards Swiss Cottage Station, it happened again - a new shop replacing one that has closed down. Then more recently, I noticed that that too has now closed down, having been open for no more than a handful of weeks.

Now I know nothing about these businesses or their owners but, from using them, I get the impression there is an individual who has fulfilled a dream by opening the premises and is clearly intent on giving customers a good experience. They work hard and want their enterprise to succeed. But, in all but one case so far, they've failed.

The obvious question that occurs to me is why - when a coffee shop has failed on a particular site - you would think it a good idea to open another? It's not just about location, but also about the clientele, the volume of turnover that can be generated, and the business model of competing operations. And this is obviously not a problem unique to Finchley Road; how often do we see businesses opening where the owners clearly haven't given enough thought to whether they've chosen the right place for them?

I said at an event hosted by Vince Cable, Mark Prisk, and Francis Maude over a year ago that one of the issues arising from the rationalisation of the Civil Service (and, indeed the private sector) would be people receiving a large redundancy payment and using it to fulfil their lifetime dream of starting a business, only to see that dream turn into a nightmare. This is one of the reasons why I believe we have still to see the peak of insolvencies and why business education is so vital. Scenarios like this can be heart-wrenchingly sad and avoiding them would be good for all of us and for the economy.

We are pleased, therefore, to be actively engaged in the BIS Finance Fitness Event and Campaign being launched in London today with the aim of making new businesses and existing ones better equipped and able to survive. We will be continuing to provide advice through our Credit Management Helpline and Managing Cashflow Guides (www.creditmanagement.org.uk) and we're also launching an SME Collections Toolkit as part of ICM Online Services that will provide very practical advice and tools with templates, video role-plays and more.

Those of us supplying and talking to small and start-up businesses could do worse than point people to advice like this; after all, if they get paid, we're more likely to get paid too!

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

I said in my blog last week that I would be meeting a couple of MPs to discuss late payment. Since then, I've met with Debbie Abrahams, Labour MP for Oldham East and Saddleworth and Anne Marie Morris, Conservative MP for Newton Abbot. In addition, I attended the BIS Small Business Economic Forum chaired by Mark Prisk and have been talking to the BIS team about some future activity around late payment. I have also been starting to prepare for a presentation I'm giving to the AFDCC (the French equivalent of the ICM) in Paris next month about the new EU Late Payment Directive. It's fair to say that late payment has certainly been at the forefront of my mind in recent weeks!

Debbie Abrahams and Anne Marie Morris are both articulate and passionate about supporting small businesses and helping to protect them from the impact of late payment. Coming from different sides of the chamber, it is no surprise that their views on what can and should be done differ slightly but they certainly have common objectives. I was encouraged by the fact that both recognised the need for a change of culture across the whole business community, acknowledged that payment terms are part of the wider contractual and commercial negotiations between businesses, agreed that more emphasis should be placed on the positive aspects of prompt payment (see www.promptpaymentcode.org.uk), and endorsed the need for businesses to be educated in the basics of credit management that can help them to assist themselves.

There is work to be done and I will continue our dialogue, exploring various ideas and initiatives. This, together with the imminent BIS activity and the continuing demand for the ICM/BIS Managing Cashflow Guides (of which there have now been over a quarter of a million downloads), gives me grounds for optimism.

I'll return to the EU late payment directive on another occasion but, before then, I suspect I'll be addressing the new - and just published - OFT Debt Collection Guidance which I'll be reading in detail over the next day or three.

Weekly Blog by Philip King, CEO of the ICM - 'Merlin loses its sparkle'

Vince Cable has apparently, and allegedly, admitted that Project Merlin has failed. The Merlin agreement with the major banks guaranteed that lending to small businesses would increase to £76bn in 2011 but his acknowledgement that 'new mechanisms' would have to be considered is a tacit recognition that Merlin hasn't worked. The Chancellor's announcement last week of his 'credit easing' plan of a new credit line for business is further evidence.

As I said at the time, the idea that commercial banks could be 'forced' (as some commentators described it) to lend seemed farfetched at best. Commercial banks have a responsibility to ensure that their lending risks are justified and their lending policies are sound. We've all seen spectator examples in the press of where they may have got it wrong but receiving much less publicity are the numerous cases where they've declined to lend and have been right to do so.

I won't pretend to fully understand the concept of 'credit easing', the detail of which has yet to be made clear, but Phil Orford, the Chief executive of the Forum of Private Business asked three very sensible questions in a recent blog about a scheme which it would appear would require Treasury officials, or officials of an agency specifically appointed for the task, to have a start making judgments on lending taxpayers' money to private sector firms:

• How will they decide which companies deserve a loan from the taxpayer?


• How will the money be channeled to the businesses that need it?


• If these businesses are safe bets, why aren't private lenders already lending to them?

All will become clear in due course and I'll be fascinated to see exactly how it will work.

The other issue that needs to be addressed is how to encourage those business with outstanding debtors to use best practice in credit management to release that money and therefore reduce their external cash requirements. It might even save them having to look for working capital funding at all, but more of that next week by which time I'll have met with two MPs - one Conservative and one Labour - and discussed such matters.

Weekly Blog by Philip King, CEO of the ICM - 'feeding the sausage machine'

Rachel Bridge, the Enterprise Editor of The Sunday Times, wrote a really interesting article at the weekend about credit insurance. It talked about a sausage maker in Devon which took out credit insurance a few years ago after suffering a bad debt of £22,000. The finance director was quoted as saying that "if our credit insurer will provide cover up to a certain limit, then we will trade. If not, we will think again. We either do not do business with that customer, or we trade on different terms, perhaps asking for money upfront".

The article went on to outline how the amount of cover provided by the big three insurers has increased over the past year, and how some have introduced new measures and more user-friendly policies. Fabrice Desnos, Xavier Denecker, and Marc Jones from Euler Hermes, Coface, and Atradius respectively were all quoted and - since all three are good friends of the ICM - it made me read the article more carefully.

It was a useful and practical guide to what is a difficult product for many SMEs to understand and, indeed, for government ministers to get their heads around. I remember many conversations a couple of years ago trying to explain how credit insurance works without ever feeling I was making much progress. Credit insurers were coming in for some pretty bad press at that time, some of it deserved, but the sector has moved on, and so too its products. Credit insurance in the right circumstances can be a really useful tool for business, including small ones, and I'm pleased to see it being explained by a respected journalist to whom SMEs will listen.

There's been a recent interesting debate on the ICM Credit Community LinkedIn group about whether credit managers who have no bad debt are the good ones. My view is that good credit professionals understand the balance of risk and reward and accept bad debts as a price of profitable sales activity, but that doesn't alter the fact that the impact of a bad debt - particularly to small businesses and especially if it is relatively disproportionate - can be devastating. Anything that helps SMEs to understand better how to manage credit and risk is to be welcomed.

LinkedIn ICM Credit Community