Weekly Blog by Philip King, CEO of the ICM - 'Help and helping oneself'

I attended a Prompt Payment workshop last week, organised by BIS and hosted by Mark Prisk. There was clear consensus among the attendees, representing government and business organisations, that late payment continues to be an issue impacting negatively on business. No surprise there then; every week we see the results of one survey or another reinforcing the message that businesses suffer when they don't get paid promptly.

The EU Late Payment Directive coming into force in March 2013 might help but if anyone really believes it's going to fundamentally change things then they are deluded. Guidance and advice issued by numerous organisations, including the ICM whose Managing Cashflow Guides will shortly reach the 300,000 download milestone, is valuable and helpful but many small business owners are too busy trying to survive to commit time looking for advice about late paying customers even though doing so might resolve many, or even all, of their cash-flow problems. Making 30 day payment terms mandatory for all transactions (as has been proposed by one organisation) would remove one of the key negotiable elements of business transactions and would be tantamount to insisting that all goods must be sold, and services provided, at exactly the same price; that seems a bit perverse and self defeating to me, in a fee economy.

If you've been following the Global Entrepreneurship Congress 2012 in Liverpool this week (I have, but I confess only on Twitter!) you might have seen Richard Branson quoted as saying: "Cashflow is everything when getting a business started..." He is right. One of our challenges is to get advice to business before they're suffering from late payment so that they get the basics right from the beginning of any new trading relationship - basics such as knowing who your customer is, agreeing payment terms before supplying, invoicing promptly and accurately, and so on. I was speaking to a small business owner recently who was complaining he hadn't been paid on time. I asked how he advised the customer what the payment terms were. His answer: "I didn't, because he needed the material urgently". We don't always help ourselves, do we?

The workshop last week was productive and I'm delighted the Institute is going to be even more involved in helping BIS take actions forward. In the meantime, those of us who deal with SMEs could do worse than signpost them to good advice such as the Managing Cashflow Guides available at http://www.creditmanagement.org.uk/ and to encourage them to do the things that we take for granted.

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 - 'A journey into the unknown'

I seem to have been reading and reviewing an endless stream of lengthy reports and consultation documents recently, including the 150 page Ministry of Justice 'Transforming Bailiff Action' consultation over the past weekend, but more of that later (and please respond when the Institute issues its consultation survey questionnaire in the not too distant future). Some of the documents have been more interesting than others but let me mention two reports relating to consumer debt and advice.

The first is 'Debt Advice in the UK', the final report produced by London Economics for the Money Advice Service. The Money Advice Service, which was initially set up by the Government, is funded by a charge levied on the financial services industry and collected by the Financial Services Authority. It replaced the Consumer Financial Education Body in April last year. In 2012/13 the Service will use a budget of £46.3 million to deliver against its money advice targets, and a separate budget of £40.5m to coordinate the delivery of debt advice across the UK. Credit professionals working in the sector will be keen to see that the financial services industry's levies are put to good use!

The report concludes that 'Overall, the desk review of the existing literature and information on the debt advice sector and the consultations with stakeholders show that, while there exists a fair body of material on individual debt advice providers or programmes, very few analyses take a more holistic approach, covering the debt advice sector as a whole or, at least, large segments of it. Notable information gaps relate to: estimates of the actual and total demand for debt advice; the volume of debt advice provision by form and channel for the sector as a whole; the needs of actual and potential debt advice seekers; and the comparative effectiveness in the short and longer run of the different forms and channels of debt advice provision.'

I may be being cynical here, but to my simple mind it seems that the report tells us more about what it can't tell us than about what it can!

The second is the 'Consumer Debt and Money Report' launched by the Consumer Credit Counselling Service as the first in a series of quarterly reports based on research carried out by Cebr. This reveals: that households are spending 24 percent of their discretionary income - £199 per month - on interest payments; that the demand for debt advice is forecast to remain high and peak in 2014 as unemployment rises across the UK; and that middle-aged and older people will be increasingly affected by debt problems severe enough for them to need to seek help, highlighting the challenging financial situation that older households face. The report predicts that CCCS's share of clients over the age of 45 will rise from a historic 28 percent in January 2005 to a projected 47.6 percent by December 2014.

I was privileged to chair the ICM's Credit Industry Think Tank last week - it's always great hearing the views of leading experts from across our industry - and, during the forum, we were reminded that personal insolvencies are falling, with 2011's figure of c120,000 representing a fall of about 15,000 over 2010. Good news perhaps, but let's bear one thing in mind: no numbers are collected for debt management plants arranged through the advice sector and these do not appear in the official published insolvency figures (another piece of missing but vital data!).

I hope at least some of the Money Advice Service's £86.8m will be used to identify the real size of the problem and the effectiveness of solutions. Without knowing where we are, it's hard to plan the route to a better place!

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.

Weekly Blog by Philip King, CEO of the ICM - 'Setting the future agenda'

I attended the ICM's 15th Regional Roadshow yesterday. Held at The Royal Armouries in Leeds, the attendance was excellent and so was the content. Gerry Barron focused on the concept that this is the time for credit managers, whereas James Perry, a solicitor from DWF, talked about what credit professionals can do to improve the chances of recovery in legal action to recover debts. I also shared my thinking about the credit management profession and the professionalism of those working within it.

The event prompted three thoughts to stand out in my mind: firstly, Gerry's statement that credit managers should be setting their own agenda in the current economic times; secondly, that we should be proud of our professionalism and the real value we add; and thirdly, that we should be smarter in the way we communicate to the audience beyond the credit professional.

Gerry worked through an example showing how the profit on a simple debt of £50 was eroded by late payment or, worse, non-payment and set out in absolute terms the impact to the business. The Benchmarker module for ICM Online Services available at: http://www.icmos.org.uk/ has a profit erosion calculator that demonstrates the same realism. It's a good way of making you think, and would be usefully shared with colleagues across our organisations as an indicator in real terms of the value we add. There is, after all, a positive impact to contrast with every negative impact - the opposite of profit erosion is profit generation - and that's where our professionalism can make a real difference!

The first and third thoughts are linked: if we're going to set the agenda, we also need to communicate in the right way and using the right language. All too often, we talk about DSO which means everything to a credit audience and almost nothing to anyone else. I believe strongly that DSO is a good and useful measure, especially on a trend basis, but it's rarely appropriate for a wider audience who would understand alternatives such as the amount of available cash collected for the additional amount of cash released into the business. Guess what, if we use graphs for the last two, an upward line is good news that matches the graphs used by our colleagues in almost every other area of the business. Credit people are, by their very nature, good communicators and a simple, subtle change to language and presentation could generate an exponential rise in the way we're perceived in our own organisations. It's time for us to set our own agendas!

Guest Blog by Bill Dunlop, Managing Director of Tower Associates - On the edge of a precipice'

The ICM joined forces with P&A Receivables, Experian, AON, and Tower Associates to run an event in London last week looking at practical implications of the Eurozone crisis. I thought - since this was so topical - I'd ask Bill Dunlop, Managing Director of Tower Associates to share his thoughts, and here they are:

"Since early December 2011, I have been working with partners to facilitate a series of workshops to examine the effects of single or multi-country exit from the Eurozone. The purpose of the workshops was to best acquaint our clients with economic, political and social events as they unfolded and what impact country exit would have on operational credit management for businesses having outstanding debts in those countries. They were also to afford the opportunity of considering the areas of operational concern and develop the template of a plan to be implemented in the event of exit occurring.

Despite these workshops being informative, well attended and generating intelligent debate, I am extremely concerned that the rapid deterioration of the economic, political and social situation is not being matched by heightened company awareness, planning and creative thought in response. Since December, the balance of economic prediction has shifted from probable Greek recovery to likely Greek exit within 12 to 18 months. In my opinion the combination of social and political unrest will accelerate this exit and we will be faced with the immediate and predicted 50 to 60 percent depreciation in the new currency. The effect of this on companies trading in Greece will be significant but, possibly because of the size of its economy, in most cases may be manageable. However, many of the pressures faced by Greece are closely mirrored in Portugal, Spain, Ireland and Italy. My greatest fear is that the Greek exit will create contagion to such a level that some or all of these other counties will follow and operate their own currency or effectively create a two tier Eurozone; either way, we will be faced with considerable depreciation of their respective currencies in those.

The effect of this on operational credit management would be close to catastrophic and there are compelling questions, as professionals, we would have to give consideration to before the event -

* Are we likely to be asked for debt forgiveness to the value of the depreciation? Most probably yes!

* How do we quickly 'stress test' our account portfolio to establish that it remains economically viable?

* How do we structure our bad debt provision in response?

* Could our customers invoke 'force majeure' to avoid payment of existing debts?

* Where possible, how do we operate more effective control over our stock in term of repatriation of existing stock or enhanced protection of future stocks?

* What future instruments of security or insurance may be available?

* Does our existing insurance cover this eventuality? Most probably not!

* Should we or can we be considering converting older debt to long term debt or customer loans?

Hopefully, I'm being overly pessimistic, but I think it's better to address these questions before the hypothetical event, rather than after the actual tragedy."

Weekly Blog by Philip King, CEO of the ICM - 'A case of the tail wagging the dog'

Ed Davey announced last Thursday that the Government is not going to seek to introduce new legislative controls on pre-packs at this time because it is not convinced that the benefit of new legislative controls presently outweighs the overall benefit to business of adhering to the moratorium on regulations affecting micro-businesses.

It's hardly surprising that the announcement has caused a furore and been presented as a victory for the insolvency profession and a massive blow for creditors. Indeed, there was a blog over the weekend that drew attention to my comments and those of Frances Coulson, President of R3, as epitomising the two positions. To be frank, this suggestion misses the point. My anger and frustration is not at the decision not to introduce legislative changes, even though I think they had some merit.

I am not fundamentally opposed to pre-packs and I believe they can be of enormous benefit when used correctly and appropriately. What I am fundamentally opposed to, however, is the abuse of pre-packs and the phoenix situation when the same directors continue what is, to all intents, the same business, but without previously incurred debts, leaving creditors high and dry. Two of the key benefits of the proposed changes were the notice period that would allow creditors to communicate with insolvency practitioners and bring what might be important and relevant information to their attention (a notice period that the Court could agree to be waived in certain circumstances), and the requirement that the IP should make a declaration in advance that he believed the pre-pack to be the appropriate solution in the circumstances; psychologically, so much more powerful than making that statement after the event as part of the SIP16 process.

But perhaps what really frustrates me is the obvious waste of time, resources and effort, and the justification for the decision that has nothing to do with what is right or wrong. A consultation launched in March 2010, and the subject of numerous meetings with stakeholders, papers, and discussion, has now been kicked into the long grass (as I feared it would) with an assertion by Ed Davey that he has asked his officials "to undertake an urgent review in conjunction with stakeholders of how the existing controls on pre-packs have been working.......". Surely that 'urgent review' could and should have been carried out as part of the consultation process? I am all for cutting regulation and red tape, and I am encouraged by the Government's ambitions and success in reducing bureaucracy through the work of the Better Regulation Executive under Lord Curry, but when the regulations argument justifies policy decisions, it feels too much to me like the tail wagging the dog.

I certainly do agree with those who, in the debate since last week, have suggested that suppliers might - and should - pay more attention to credit risk management in order not to be in the frame (or at least to control their exposure) when a pre-pack, or any other insolvency, happens.