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

It's been a busy news week. I was interviewed on Jeff Randall Live on Sky News on Monday evening about the government's proposals to cap the cost of Payday Lending.  A bit like buses though, news stories of interest tend to come in twos and threes, and I had a view on the three main news stories the programme was covering.

Firstly, the Lawrence Tomlinson report containing allegations that RBS had pushed healthy small and medium-sized businesses into administration to strip their assets and then buy them back cheaply to make a profit.  As the MP Mark Garnier said in his interview: "I'm not a lawyer, but these allegations, if true, look a lot like fraud to me." How many credit professionals are looking back at bad debts incurred where they thought their decision to supply had been reasonable based on their assessment of customer risk only to be caught with a bad debt when the customer went in to insolvency and wondering if the allegations might be true?  Apart from the obvious impact on the businesses forced into insolvency, what might the wider impact on their suppliers and the economy be?

Secondly, the government was selling £900m of student loans to a debt management consortium for £160m. The loans had been taken out by students who started courses between 1990 and 1998.  Part of the reaction to the news was that debt collection companies would act irresponsibly and aggressively in recovering debts that have so far not been collected.  The Student Loans company doesn't have the best record in managing its loan book and particularly the older elements of the portfolio.  We're told the terms and conditions of the loans are not going to be changed as a result of the sale and, if engaging third parties increases the recovery of funds to the public purse, then I'm all for it.  Perhaps the debt collection companies will just apply good credit management principles and collect money that is overdue from people who can - and should - be repaying it.

Thirdly, the Chancellor's announcement that government will impose a duty on the FCA to cap the cost of payday lending.  Setting on one side the suggestion that the announcement is one of political expediency, there are bigger questions to be answered. How will the cap level be determined?  The quoting of the Australian model with its cap of 4% per month seems to overlook the 20% arrangement fee that can be charged, and the punitive penalties for late payment that can be applied.  And the last thing we want is for the cap to make short-term lenders flee the market forcing borrowers to use loan sharks instead.

I'm not averse to the principle of restricting overt profiteering that can exploit the most vulnerable but let's not forget that payday lenders aren't the only guilty parties here.  As I said to Jeff Randall, I went online and looked at what £100 payday loan for a month would cost.  I'd have to pay back £137.15. If I took an unauthorised overdraft on my current account with a High Street bank the cost would be £5 per day, capped at £95 in a month.  On another current account I looked at, the cap would be £150, and both of these accounts would also charge transaction fees on top.  On this comparison, charges of £37.15 sound a snip!

Equally big issues with payday lenders are the opportunity for borrowers to take out multiple loans with multiple lenders, the availability of repeated roll-overs, and - as I've said in this blog before - the failure of lenders to carry out adequate affordability checks ahead of granting loans.

Back to my buses analogy, I guess next week will be devoid of any significant news and we'll be back to following the exploits of celebrities and their social lives!

 

Weekly Blog by Philip King, CEO of the ICM - 'The power to make a difference'

I was privileged to chair the 5th National Consumer Debt Conference, organised by Utility Week, in Birmingham on Tuesday. It was a full and interesting day with the order of subject matter judged exactly right.

 

The first section focused on the economic landscape looking at issues around ability to pay, the implications of the current welfare reforms including Universal Credit, and the mechanics of the government's Green Deal scheme. The second section looked at customer management including the use of analytics to identify the most vulnerable in our society, and a cross section of good practice examples of customer-driven strategies. The final part of the conference addressed billing and collections, exploring areas as diverse as fraud and meter-tampering, landlord web-portals, risk management strategies, and smart metering.

 

You'll probably guess from some of the subject matter above that the delegates were largely from the utility and energy sectors where there are some particular credit management issues. The water industry's problems arising from the obligation to supply, and difficulty in identifying customer details, particularly in tenancies, for example, are well known and equally well documented.

What always strikes me at events like this, however, is just how many themes are common across industries and sectors. While each has its own peculiarities, trends, and concerns, the principles and elements of good credit management practice are largely shared.

 

At the end of the conference day, I hosted an interactive workshop where we discussed, amongst other things, what best practice looks like. One of the common themes that emerged was the need to drive professionalism within organisations through the engagement and development of credit professionals within them.

 

Driving that professionalism is one of the key objectives of the Institute of Credit Management and I'm always proud to hear examples of where we're succeeding, and to be playing a part in raising standards and performance as a result.

 

 

 

Weekly Blog by Philip King, CEO of the ICM - 'Reading between the lines?'

Last week Vince Cable announced that the Government was tabling the Statutory Instrument to implement the planned changes to accounting thresholds.  The accompanying BIS press release heralded the fact that allowing 36,000 more companies to choose not to have an audit "will help save UK companies millions every year and free them up to expand and grow their business, which ultimately benefits the entire British economy".

 

How frustrating it is to see the Government fail to grasp a fundamental principle of trade credit and business. Suppliers make credit decisions based on the information available to them; the more information, and the more reliable it is, the better will be the quality of the decision.  It follows that, where the information supports it, credit will be more readily available to the business requiring the goods or service.  Most likely, 36,000 companies will now follow the implicit steer from Government and leave potential suppliers struggling to justify the granting of credit.  Will that aid economic growth? I think not!

 

We should remind ourselves what audits do.  Formally, they ensure the accounts represent a true and fair view of the company's financial situation giving suppliers confidence in the status of the business they're being asked to support through the provision of goods or services on credit.  But they do much more besides.  Very often, they highlight errors in the business's accounting system, records or processes, they identify any gaps or omissions that could be attributable to inefficiency or, worse, fraud, and they provide an independent and objective view of the business.  A good auditor can be very useful to a business; I know the ICM's auditor takes a real interest in its business and our discussions go far beyond the accounts and the numbers.

 

Interestingly, only this week, I saw a draft article for a European magazine by a university academic referring to the positive impact of the changes in 2006 that obliged German companies, especially small and medium-sized ones, to disclose financial statements and the resulting increased transparency!

 

I understand the thinking behind the changes and I have no problem for micro-businesses with very low turnover where accounting is cash-based and simple, but we're talking here about businesses with turnover up to £6.5m and 50 employees.  When an error eventually comes to light and the company fails because it's too late to do anything about it, there will be impacts on the business, its suppliers, its employees and the economy.  The suggestion that something that can be so invaluable is an unnecessary regulatory burden is misguided, naive, and unhelpful.

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.