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 - '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.

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

 

I'm always fascinated by arguments about correct usage of words and I was amused by a debate on the Radio 4 Today programme on Tuesday about whether, since the bulk movement of Ministerial appointments was the first by David Cameron, it should actually be called a shuffle rather than a reshuffle. A complete irrelevance but nevertheless quite fun!

 

More interesting has been the debate about the real reasons for the changes and whether they are to achieve policy shifts, to recognise good or poor performance, to change the political spin brought to specific areas of government activity, or simply to change the shape or style of the ministerial team. There are many and diverse views about this, and I suspect the reality is that it is a combination of all four and some more besides.

 

Speaking personally, I'm sorry to see Mark Prisk move from his role as Minister of State for Business and Enterprise. Although I haven't always agreed with him, he is tuned into business and seems to understand well the challenges they face. It will be interesting to see whether Michael Fallon maintains the momentum started by Mark but the inactivity caused by ministerial transition is always frustrating even though it's nothing new and expected.

 

Whatever the motivations for the changes, many issues remain and require resolution, one of which is the amount of debt owed to central government estimated to cost the public purse £7-8billion per year. Earlier this year, the interim report 'Tackling Debt owed to Government' was issued by the Cabinet Office's Fraud, Error and Debt Taskforce and since then the Institute has continued its engagement with the task force and the Debt Expert Panel in identifying how professionalism in debt management across government can be enhanced and improved. As part of that work, we are pleased to be working in association with Dods who are delivering a conference in London on 15 October considering the issues raised by the report, reviewing the activity underway, and looking to the future. If you're involved in working in, or with, the public sector in any way and want to attend, please register here, and I'm pleased to say ICM members can gain a £200 discount from the standard conference fee.

 

 

Weekly Blog by Philip King, CEO of the ICM - 'Supporting the Business in You'

A campaign was launched by David Cameron in Leeds on Monday. 'Business in You' is a partnership between private enterprise and Government to highlight support for start-ups and growing businesses and encourage entrepreneurial spirit in 2012. It will run throughout the year and I'm delighted to say the ICM is actively engaged as one of the initial supporting organisations.

The campaign aims to highlight the fact that many people are sitting on an idea that could become a business, and many businesses have the potential to grow whether that's by launching new products, entering new markets, exporting for the first time or more widely, or by accepting the challenge and going for growth despite the negative malaise that surrounds us. The campaign website can be viewed at: http://businessinyou.bis.gov.uk/

I was at a meeting at BIS with many other of the supporting organisations on Tuesday and there are some really inspiring case studies being shared, and some innovative support solutions being offered by organisations as diverse as the Forum of Private Business, CBI, Institute of Directors, British Bankers' Association, ACCA, ICAEW, Intuit, Microsoft, Paypal, and Mitie to name but a few. Interestingly this is less about a government campaign with private sector support, and more about a collaboration that brings together the best from both the public and private sectors. And encouragingly, this isn't a government short-term soundbite-style gimmick but a long-term activity lasting for the whole year with links into many events and propositions. So how does the Institute of Credit management fit into this?

One of the challenges for all businesses, and particularly for start-ups and growing organisations, is making sure they have enough cash to sustain the business and its requirements. Managing cash-flow is vital, and the over 275,000 downloads of the ICM's Managing Cashflow Guides are testament to how relevant the subject is, and what an appetite there is to gain the necessary skills to manage it better. I hope the 'Business in You' campaign succeeds in encouraging more entrepreneurs to create a start-up, and more businesses to successfully expand but if it also helps businesses to manage their finances better and therefore survive longer, then it will have delivered something really worthwhile. I am proud that the ICM is among its supporters.

Weekly Blog by Philip King, CEO of the ICM - 'A positive route to growth'

So the latest Project Merlin figures have been released and they show that, in the third quarter, new lending to business was £57.4bn, of which £18.8bn was to SME's. Let's remember that the full-year targets are £190bn and £76bn respectively with £157.7bn and £56.1bn being achieved so far. Simple arithmetic tells me, assuming nothing much changes, that the total lending target will be achieved and the SME target will probably fall a trifle short. Not surprisingly, the data has generated the usual and expected clamour for banks to be forced to lend more to small businesses.

Regular readers will not want me to reiterate my view with regards the fallacy of 'forcing' banks to lend, and they will have seen my blog last week talking about some basic errors made by start-up businesses. I believe my observations then support my contention that lending decisions should be based on rational - rather than political or emotional - criteria.

I was privileged to be a contributor to the BIS/UKTI-organised UK Growth and Finance Fitness event in London last Thursday, and the subject of SME growth and finance was a recurring theme in Lord Green and David Cameron's opening speeches. Vince Cable also took up the theme in his address, as did Doug Richard, and early Dragons Den guru and an angel investor, who expressed his views clearly and articulately.

The reality of course is that not all SMEs want or need to borrow; indeed a recent SME Finance Monitor report showed that 47 percent never use external funding ('never' defined as neither now nor in the past five years). What we need, therefore, is an environment in which SMEs want - and feel confident - to grow, and one way to achieve that would be through a growth in exporting.

Two statistics in David Cameron's speech struck me in particular: firstly, only one in five SMEs export but if that figure was increased to one in four, Britain's trade deficit would be wiped out; secondly, Britain exports more to Ireland than to Brazil, Russia, India and China combined; the BRIC countries therefore represent a huge potential market.

So why don't more SMEs export, and, perhaps connected, why don't more SMEs want to obtain external funding? I've said in a number of forums with government and others that the key to SME growth is less about obtaining funding, and more about building confidence. Increased confidence would deliver more willingness to introduce new products and services, more willingness to enter new markets either at home or overseas, and more willingness to take on additional staff.

I've also expressed my view that many SMEs don't consider exporting because they see it as a 'dark art' and are afraid of the unknown. I'm delighted ECGD announced at the event that it is changing its name from 'Export Credits Guarantee Department' to 'UK Export Finance' and is going to work much more closely with UKTI. I believe that even such a cosmetic change will make SME's less apprehensive or uncertain as regards what the former ECGD does - and the help it can provide.

A recurring theme also came from the panel of small businesses who are successfully exporting. They started exporting because they were in a desperate situation and it was their last hope of keeping the business alive...and it worked. What we need is more businesses embracing exporting as a positive route to growth rather than a last resort and act of desperation.