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

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

 

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

 

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

 

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

 

 

Weekly Blog by Philip King, CEO of the ICM - 'Standing tall and proud'

When I said in my blog last week that it was time for credit professionals to stand up, to be noticed, and to be proud, I was talking about the value they contribute to their organisations and to the wider economy. I'm glad to say that I'm seeing a trend that exemplifies the pride I'm talking about.

I've noticed an increasing number of ICM members who include their designatory letters - AICM, MICM, MICM(Grad), or FICM - on their business cards, their email signatures, their LinkedIn profiles, and elsewhere. These letters are not just given away when someone becomes an ICM member; they have to be earned by gaining qualifications and/or having their practical experience verified, validated and reviewed.

Some might say the practice is archaic but I believe those who have earned them should be proud of their achievement and are right to use them in this way. If you don't tell people what you've achieved, who else will?

I've also seen a marked increase in the number of ICM members wearing the ICM badges we launched earlier this year. This, too, is a good way of promoting your professionalism and - if you don't have a badge - simply email icmmembership@icm.org.uk and we'll be delighted to send you one.

Don't be a shrinking violet!

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 - 'Measure for measure'

The Government has this week published its response to the BIS Select Committee's report on Debt Management published in March and it makes interesting reading.  The original report contained 23 recommendations and the government responds to each one in turn. The document can be found here and what pleases me is the measured and proportionate nature of the responses.

 

The timetable for the planned review of the regulatory framework, including the transfer of regulatory powers from the OFT to the FCA, is set out with the final transfer expected to take place by April 2014.  Having a clear timetable and plan including expected consultation dates is helpful.  The more interesting aspects, however, relate to payday loans and debt management companies.

On payday loans, the Government refers to the work it has been carrying out with the four main trade associations representing over 90% of the payday loan market to improve consumer protection in their codes of practice.  These improvements together with the OFT’s review investigating levels of compliance with the Consumer Credit Act are, in my view, the right approach before any more stringent measures are considered.  Furthermore, the codes include measures to address the issues of rollover loans, affordability assessment, and continuous payment authority, and the Government has undertaken to review how best to include high-cost credit transactions in credit files.

In summary, close engagement with the trade associations to introduce enhanced consumer protections into their codes of practice and their commitment to publish a common industry-wide Good Practice Customer Charter setting out in a clear, concise and user-friendly format what customers of payday and other short-term loans should expect from their lender is positive and encouraging.  One can never condone poor practice but I believe payday loans have their place in certain circumstances and meet a particular need.

With regard to Debt Management companies, the Government is working with stakeholders to develop a Protocol of best practice for debt management plans which will cover transparency of fees and costs (particularly where they are upfront), misleading advertising, and safeguarding client accounts.  Again, in my view, working with the industry and trade bodies makes absolute sense before considering legislation and heavier regulation.

 
It's worth also noting that – in both cases – the approach being proposed will deliver faster results than would be achieved by the introduction of legislation.  Finally, as an aside, I have to mention again my particular soapbox that Debt Management Plans should be reported in the insolvency statistics so that the published numbers are a true representation of personal insolvency levels.

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.

Please click here to complete the ICM UK Credit Managers' Index - it only takes 2 minutes.

If you haven't already signed up to participate in the ICM UK Credit Managers' Index, please join the panel that commits to complete it quarterly and contribute to this influential and important industry benchmark. The results are widely publicised in the trade and financial press, and on the ICM website, and all participants will automatically receive access to the results and summary prior to general release.

Weekly Blog by Philip King, CEO of the ICM - 'Sound bites aren't enough'

Amid the hype around Project Merlin and the banks last week, the announcement from BIS of four new schemes http://bit.ly/gglodF specifically to help exporters seems to have got somewhat lost in the noise.

On the face of it, all four of the schemes have merit. They are designed, in simple terms, to enable businesses greater access to trade finance and insurance against credit risk where such help may not be available from the private sector.

As always with such initiatives, the devil is in the detail which I fear the headline announcement masks. It seems the circumstances in which the schemes will be available are limited, and the benefits will - in turn - also be restricted to a few rather than the many. Previous forays by government to support exporters have not been spectacularly successful; they have tended to be overcomplicated, and as a result, under-subscribed.

Export growth is crucial in the recovery we so desperately need, and schemes like these need to be visible, understood, and used; they need to be simple and easy to apply for; and they need to be flexible so their impact is maximised. The intention is laudable, and I don't want to write these off just yet. But there is a tendency for government to fail in its follow-through, and this time they need to listen and respond positively and quickly to feedback so the objectives of driving exports and aiding economic recovery in the UK can be met.

Businesses don't grow through sound bites. Behind the rhetoric, there need to be real and tangible measures of support.