Weekly Blog by Philip King, CEO of the ICM -'Directors must take responsibility for their actions'

I received the report from the House of Commons Business, Innovation and Skills Committee on The Insolvency Service (Sixth Report of Session 2012/2013) recently. In more everyday parlance, this was the report from the Select Committee that met last October and heard evidence from the Insolvency Service, R3, the Insolvency Regulatory Bodies and others. One of the comments in our submission has been somewhat over-stated,  and our words used out of context, but I am particularly pleased at the inclusion of another reference which says: 'The Institute of Credit Management summarised the concerns of many of those who submitted evidence to us when they commented: "We would be greatly concerned if the reductions in budget [of the Insolvency Service] resulted in a degradation or reduction of Disqualification Unit activity. We believe any such dilution of activity would send entirely the wrong message to delinquent directors at a time when corporate insolvencies are likely to increase".'

 

In connection with the disqualification of directors, the report points out that 'disqualifications have halved over the last couple of years………whilst the number of directors disqualified each year has remained relatively stable over the past decade (approximately 1,200 a year), the number of cases of misconduct identified by Insolvency Practitioners in the same period has risen from 3,539 to 5,401…..the disqualification rate has fallen from 45% in 2002-03 to just 21% in 2011-12.'

 

It is widely accepted that the UK is one of the easiest countries in which to start a business, and that's good, but business owners need to show some responsibility in return for the 'veil of incorporation' which limited company status affords them. If a company can be formed with £1 issued capital and the directors have no personal liability, there have to be consequences if they are found to be guilty of misconduct that leaves their creditors out of pocket. Insolvency Practitioners are required to submit a return identifying where they believe misconduct to have occurred and they have the right to expect their report to be acted upon. Currently only 20% of reports are taken forward to disqualification and that's not good enough so I'm delighted that the Report recommends 'that the Department provides the Insolvency Service with sufficient, and if necessary, additional funding to disqualify or sanction all directors who have been found guilty of misconduct.'

 

Let's encourage entrepreneurship and initiative but let's not turn a blind eye on sharp practice that leaves suppliers with bad debts and impacts negatively on their business and the wider economy. I happen to believe there should be a minimum amount of issued capital required to form a limited company so that directors and business owners take their responsibility more seriously but I'll save that argument for another day. In the meantime, let's hope the Select Committee's recommendation is fulfilled. It definitely needs to be.

Weekly Blog by Philip King, CEO of the ICM - 'A reason for good cheer'

As we enter the Christmas break, it's good to pause and reflect on the last 12 months.  Our Regional Roadshow programme, for example, has been really successful and it was great to end the year with a superb event at the premises of Schuco in Milton Keynes.  It was an excellent venue with great speakers, and proved to be a fantastic example of the ICM credit community at its best.

 

Looking at our wider activity, we've had some notable success too.  By the end of the 2012 there will have been 125,000 downloads in the year, over 50,000 more than in 2011, and almost 400,000 downloads in total of the Managing Cashflow Guides that were written and launched in 2008.  The Prompt Payment Code (PPC), which we host and administer for BIS, featured in a November House of Commons debate when the ICM received no less than eight mentions, and we've seen a surge in sign-ups in the last few weeks - particularly from large organisations - with signatories now standing at over 1,240.

 

Even more encouraging however is recent research by Experian showing that the PPC has had a positive effect on payment times.  It found that on average those who had signed up to the Code paid five days earlier than those who had not.  Furthermore, there has been a sizeable improvement over the period amongst PPC signatories who now pay 12 days quicker than in December 2008.

 

The Code was launched late on Christmas Eve, 2008 and, while I accept that there is much much more to be done, it's great to see independent evidence that it is has made some progress in changing the culture it was designed to achieve.

 

I'm looking forward to an exciting 2013.  In the meantime, may I wish you a very happy Christmas and a peaceful, prosperous and productive New Year.

 

Weekly Blog by Philip King, CEO of the ICM - 'Setting the agenda for credit management'

Last week we saw late payment and the Prompt Payment Code, hosted by the ICM for BIS, rise rapidly up the political agenda.  Business Minister Michael Fallon wrote to the Chief Executives of all FTSE100 and 250 companies that have not signed up to the Prompt Payment Code, urging them to do so and advising that he plans to publicly name those who don't.

 

Then, last Thursday, there was a debate in the House of Commons on 'Stimulating growth through better use of the Prompt Payment Code' where the impact of late payment was discussed in detail.  The ICM's press release following the debate can be found here.

 

This recent activity coupled with the implementation of the revised EU Late Payment Directive by March 2013 means that credit management, as one of the most effective ways to avoid and deal with late payment, is also firmly on the agenda.  Credit management is key to ensuring healthy cashflow and there have now been over 370,000 downloads of our Managing Cashflow Guides aimed at helping small businesses to get the basics right.

 

Let's make sure we make the most of this opportunity to demonstrate and promote the value that credit professionals bring to their businesses and ultimately to the economy as a whole.  Now is the time to stand up and be counted, be noticed, and be proud.

Weekly Blog by Philip King, CEO of the ICM - Dodging the silver bullet'

It has been a busy week. I went to the ICTF (International Credit & Trade Finance Association) Symposium in Paris on Sunday and presented to the delegates on Monday afternoon about the EU Late Payment Directive which is due to be implemented by March 16, 2013. Yesterday, I attended a Round Table at the House of Commons organised by the Forum of Private Business and Graydon discussing their ‘Research on Payment Culture', and this morning I attended Mark Prisk's Small Business Economic Forum at BIS.

The common theme with all three has been the impact of late payment on business and economic growth, a subject I also addressed in my blog last week. I've been looking at the EU Directive in much more detail and it includes some good elements building, as it has, on the 2000 Directive. Nevertheless, I remain sceptical about legislation being the silver bullet many suggest. Two of the primary reasons for the ineffectiveness of the current Directive are ignorance and reluctance. Huge numbers of businesses don't even know about the Directive and many of those that are aware of it don't know how to use it properly. Even if they know about it, and know how to use it, businesses don't want to upset their customers by raising an invoice for late payment charges and interest; they believe it will impact negatively on their relationship as a supplier. 

Consensus among the politicians, business organisation leaders, accountants and journalists at yesterday's Round Table was that it is the culture in business that needs changing. Legislation may play a part but it won't be the sought-after panacea. One of my most common themes when talking about cash-flow management is the need for payment terms to be integral to general trading discussions. Payment terms and arrangement shouldn't be sitting stage-left waiting to come on stage when everything else has been discussed and agreed! They should be discussed alongside price, discounts, colour, quantities, quality, delivery arrangements, and everything else that needs to be agreed.

Cashflow is vital to suppliers; the supplier's strength and sustainability of the supply chain is vital to buyers, and these issues are not mutually exclusive. When managed properly, credit terms can deliver more, to the benefit of supplier and buyer alike.

That's what credit management is about and why it's so important and central to business success.