Weekly Blog by Philip King, CEO of the ICM -'Kill or cure the zombies'

On Monday the Financial Times ran a story with the headline "Institutions urged to kill or cure the zombies" which talked about "zombie" businesses, to describe those that can pay interest on their debts but has no viable means of repaying the principal over the long term. The article highlights the fact that many businesses are passed the point of no return but are staying afloat because of low interest rates, HMRC's discretionary Time to Pay arrangements, and/or banks keeping businesses in "intensive care" rather than allowing them to fail. It is little comfort to see a respected newspaper making the very same arguments that I have been saying for at least the last two years in my public assertions that there is a spike of corporate insolvencies waiting just round the corner. I recognise that it has taken longer to reach the corner than I anticipated but I continue to maintain that we are going to see a substantial increase at some point. Too many businesses are in a state of denial and it is only going to take a change in one factor to push them over the edge, be that the rent quarter day this week, a negative response to a request for an extension to the HMRC Time to Pay arrangement, an increase in interest rates, or another factor such as a large customer failing or failing to pay sufficiently promptly.

If you watched Dragons Den this week you might have seen the director of a twenty year old business seeking £100,000 investment to help his business grow. Upon questioning, it became apparent that the business had been loosing money in three of the last four years, had a very low balance sheet net worth and, if current forecasts were met, would be technically insolvent at the end of the current financial period. The argument that sales next year would be much better and would see a return to profit seemed to have little substance and, not surprisingly, there were no takers among the dragons. It's obviously difficult to see the whole picture from a few edited minutes on TV but the scenario of a business thinking tomorrow will be better without realising the reality of its financial situation today is not uncommon.

In the FT article, Christine Elliott, Chief Executive of the Institute of Turnaround said "she would like to see institutions that have potentially viable businesses under their care change their mindset. They should either recognise non-viable businesses and deal with them through insolvency or put in place a transformation plan to achieve their potential". We credit professionals have a very similar task: to recognise viable businesses and help create profitable sales for our own organisations, and to recognise non-viable businesses and ensure exposure is minimised. Sometimes we to have to decide whether to kill or cure the zombies.

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

So the Prompt Payment Code received some negative press at the weekend - described as 'nothing more than window dressing' and 'complete nonsense'. The ICM administers the Code on behalf of BIS and so you'd expect me to react to such comments.

Firstly, I wish the FT had asked the ICM for a view. Since we administer it, we are better placed to comment than people who have never even heard of it.

Secondly, I find it frustrating when the point is so obviously missed. The Code aims to ensure that the terms and conditions agreed between two parties are adhered to. It is NOT about whether the agreed payment terms are 30, 60 or 90 days; that is a complete red herring. What is critical to small businesses, and indeed any business, is the certainty of payment. It is this certainty that allows businesses to manage their cashflow accordingly.

I agree that the Code needs to be better promoted, and lack of compulsion is a real issue, but it should be remembered that the PPC was one of a range of initiatives launched by BERR (now BIS) in partnership with the ICM including a series of Managing Cashflow Guides of which there have now been more than 225,000 downloads.

What's equally frustrating is the lack of recognition that the real requirement is for good credit management across the whole sales life cycle from beginning to end. The challenges we have received about Code signatories almost without exception display an element of basic credit management practice being missed - order number not being quoted or terms not being agreed in advance for example. Large businesses exploiting smaller suppliers is abhorrent but those smaller businesses need to recognise their own complicity in creating the very circumstances about which they complain.

Managing Cashflow Guides