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 - 'Sharing the golden nuggets!'

I spent a day this week at the ICM's Quality in Credit Management Best Practice Conference in London. The event was for organisations that have achieved, are on the journey towards achieving, or aspire to achieve the Quality in Credit Management accreditation award. What a great day.

 

I'm not going to bang on about the benefits of the Quality in Credit Management Award accreditation scheme (though clearly I could) but rather I'm keen to talk about the benefits of sharing best practice. When you get a group of people in a room who are at the top of their game - either personally or from an organisational perspective - it's amazing what comes out.

 

At the conference, we heard a series of speakers sharing their experiences and giving examples of best practice. Of course, what works for one organisation might not work for another, but hearing and filtering ideas is a great opportunity to improve, and helps meet one of the objectives of QICM, that of facilitating continuous improvement for people and organisations.

 

Some of the ideas were incredibly simple and others far more sophisticated. For example, we heard about the huge impact of introducing very simple and cheap 'music on hold' which made a great positive impression on both customers and the internal organisation.

 

More than one presenter talked about their plans to educate customers to improve their own credit management processes and procedures on the basis that, if they were more effective at collecting cash, they'd be better able to settle invoices promptly. A good example of sharing best practice with the wider business community and particularly with SMEs and micro-businesses who may lack relevant experience and expertise.

 

We saw some impressive dashboards and an explanation of how they can be used to best effect. Letting commercial people understand the value of overdue debt in terms of a number of new salesmen or replacement delivery vehicles, for example, is not a new idea but is very powerful.

 

Afternoon presentations addressed how to energise and motivate teams through periods of change and how to make step changes in performance. Some innovative and invigorating ideas on how to create a culture that is focused, cohesive and driven. The case studies came from large organisations but contained concepts that could be adopted in a variety of environments.

 

What's even more interesting about events like this is that people can contribute more than they realise. Participants turn up expecting to learn from the wisdom and experience of the presenters without realising how good they are themselves, and what nuggets they also have to share. Whether we call it networking or by some other grand name, sharing what we know, what we do, and what we've learnt is one of the most powerful business tools, and we should do more of it.

Weekly Blog by Philip King, CEO of the ICM - 'Unearthing a hidden gem'

The government published its Information Economy Strategy last week (it can be found here: https://www.gov.uk/government/publications/information-economy-strategy).  The 57 pages set out the vision for a "thriving UK information economy enhancing our national competitiveness with, among other things, a strong, innovative, information sector exporting UK excellence to the world; UK businesses......confidently using technology, able to trade online, seizing technological opportunities and increasing revenues in domestic and international markets".  The intent and programme are ambitious yet vital if we are going to stay at the forefront of technological change and make the most of the opportunities that change will present in the years ahead.  I count myself among those who remember computer printouts being introduced as working tools in the late 1970s and I'm still struggling to grasp the concept of 3D printing as a form of manufacture so, like you, I've experienced the huge change over the past few years.  Indeed, it's not so long ago that the idea of me writing these words on an iPad sat in a car would have seemed the stuff of science fiction!

Anyway, back to the government report which has a real gem hidden away on page 23. It says government wants to make it easier for suppliers by encouraging the use of electronic invoicing.  Its aim is for central government to use electronic invoicing for all transactions.  While not mandating suppliers at this stage, it will look at ways to spread best practice and will track progress.  It goes on to say that, to realise the full benefits of e-invoicing, it is important that systems are easy to install and use, and the pricing is flexible enough to suit the needs of diverse businesses.

The ICM is increasingly engaging with the UK National e-Invoicing Forum which pulls together a number of e-invoicing providers, business organisations, and others with an interest in promoting the use of e-invoicing.  One of the interesting outputs from the Prompt Payment Code (hosted and administered for BIS by the ICM) is that the majority of complaints against signatories end up identifying administrative issues in either the raising and submission of the invoice, or the authorisation process at the recipient's end. I regularly talk to SMEs, and particularly micro-businesses, who still appear to fail to see the importance of raising invoices promptly and in line with the requirements of the paying organisation.  It can be a pain to jump through hoops to meet exacting demands of a customer but that pain fades into insignificance when set against the pain of running out of cash!

Implementing e-invoicing systems may seem daunting but, once in place, the whole process can become seamless allowing payment to hit on the agreed and expected day without further intervention.  The report is right in identifying that systems must be easy to install and use, and it's encouraging that providers have committed to look at ways to improve interoperability and accessibility.  Anything that helps add to the certainty of payment is good for business and will help support economic growth through improved cashflow.  The Prompt Payment Code (www.promptpaymentcode.co.uk) drives better payment behaviour.  Good credit management practice is vital, and e-invoicing too can play its part.  I'm looking forward to working with the UKNEF and the e-invoicing providers in the months ahead as their products evolve and awareness is raised.

Weekly Blog by Philip King, CEO of the ICM - 'Understanding the value of software'

I had an interesting meeting with our friends at Intuit last week, a company probably best known for its Quickbooks range of accounting software. But as well as producing financial software for small businesses, it also provides free small business training through its Financial Fitness workshops programme. It was this latter activity and its support for Start-Up Loans that led to our meeting.

 

I was pretty impressed by the products I saw and by the ways in which different financial activities can be integrated and monitored over a range of mobile devices as well as traditional Pcs, but I was staggered by a statistic they shared with me. I'm well aware of the 'lies, damned lies, and statistics' notion but – even if the detail is over-stated  - it's still incredible. I was told that 66% of businesses with up to 15 employees use no software at all to manage their accounts, either relying on an accountant to periodically pull together numbers from a pile of abstract pieces of paper and records, or simply muddling through with a combination of paper and/or spreadsheets.

 

I've been preparing for a presentation at the Milton Keynes Business Expo 3.0 Exhibition on 8 March where I'm addressing the topic 'Cashflow is King – Ten Top Tips', and this has made me think. Managing a business means knowing its position at any particular point in time. With a diverse range of simple and inexpensive tools available from a host of different suppliers that allow for the production of invoices, recording of expenditure, taking of payments, summarising outstanding debts, and a great deal more besides, you have to ask why any business, however small, would not use something so obvious and instantly available to make its life easier. I clearly knew there'd be a proportion of businesses that manage without any software or specific credit management tools but 66% is a real concern. I think I have just found an eleventh tip…!

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 - 'Fatal distraction'

So Wonga has entered the business loan market and added to what is already a fast and dramatically changing landscape.  The introduction of services such as Funding Circle and MarketInvoice have already had a big impact on how businesses can source finance and the recent Breedon Report recognised that alternative funding sources are here to stay.  Couple that with last week's Bank of England Trends in Lending report which said….. "The annual rate of growth in the stock of lending to UK businesses was negative in the three months to February. The stock of lending to small and medium-sized enterprises continued to contract….." and you can see why Wonga might sniff an opportunity.  I'm not sure Wonga is a good solution for small businesses strapped for cash but it's little different to a small business owner funding his business using a personal credit card or two, and that's been happening for years.

 

What worries me more is the suggestion touted in the media and elsewhere that solutions like MarketInvoice are a cure for late payment.  They're not.  MarketInvoice allows a business to sell invoices to a network of institutional investors and it can release the capital tied up in those invoices in real time.  In the short term it can therefore address the cash-flow problem caused by late payment but it's not a cure.  Payment still has to be obtained and, if the invoice is not eventually paid, the amount will have to be refunded to the investor.

The problem as I see it is that – having obtained funding against the invoice(s) - the business owner has removed the immediate cash-flow hole caused by non-payment and can focus attention elsewhere.  The problem hasn't gone away though, and if there is a fundamental problem preventing payment it still needs to be resolved.  Let's not forget, and let's make sure that small businesses don't forget, that the best way to avoid late payment is to get the basics right: knowing your customer, agreeing payment terms in advance, invoicing correctly and promptly, and chasing payment immediately it becomes overdue.  Anything that slows that process, or distracts from it, could lead to far more serious problems; timing is all-important in the management of cash-flow and collection of amounts due and, while attention is elsewhere, the slow-paying customer could fail and become a bad debt rather than just a late payer.

Cashflow keeps business in business and good credit management is vital to maintaining that cash-flow. Mixing messages is not helpful.

http://www.creditmanagement.org.uk/bisguides.htm

Weekly Blog by Philip King, CEO of the ICM - 'Late Payment thinking that is back to front'

I spoke at a conference organised by the AFDCC (the French equivalent of the ICM) last Friday in Paris. It was a good event held in a very impressive venue and about 150 delegates assembled to hear about and debate, amongst other things, the new EU Directive on Late Payment. One of the keynote speakers was Barbara Weiler MEP, an architect and key driver of the new Directive. Her passion for the benefits on business of improving payment terms is not in doubt and her energy has clearly been instrumental in getting the Directive adopted.

The recent survey of ICM members conducted by Equifax showed that 65% of respondents believe the Government should do more to protect small businesses from the negative impact of late payments, and there can be no argument that the existing legislation has not worked in the way intended. Businesses, and particularly small ones, are either ignorant of the law, don't know how to use it, or are afraid to do so for fear of losing a customer. There are exceptions of course; I know credit professionals who use it very successfully and mitigate the cost of financing extended credit by so doing, and I know others who generate a late payment 'charges and interest' invoice to accompany the first collection letter very effectively.

Primarily, the real financial benefit comes when legal action is taken and the late payment charges and interest are added to the principal debt and can significantly increase the amount recovered. But that was never the point of legislation - it wasn't intended to make for better recovery at the end of the food chain; the idea was to improve payment behaviour from the start!

Unfortunately, politicians often seem to miss the point of what happens in the real business world and this is no exception. The Directive states that, if payment terms are not agreed in the contract, then the assumed terms shall be 30 days and - if payment terms are set out in the contract - they cannot be 'grossly unfair'. The definition of 'grossly unfair' is unclear but, in any event, how many small companies would be willing or able to take legal action to argue the case and get remedy? The inclusion of a clause allowing a supplier to recover reasonable actual debt recovery costs (in addition to interest) rather than just the current standard late payment charge is positive but is again a back-end benefit, not a front-end incentive to change payment behaviour.

For me, the most encouraging thing in the whole conference was Barbara Weiler saying that the Directive is as much about changing the culture of payment through soft issues as it is about introducing hard legislative measures. The UK has been lauded for its Prompt Payment Code (administered for BIS by the ICM of course) and educational activity like our Managing Cashflow Guides are also recognised as leading the field. As credit professionals we have more opportunity than most - and should use it - to influence that change of culture by adopting credit management best practice. We can and should be more powerful and effective than a Directive and if the Directive gets more attention and visibility for the importance of cash-flow management and the value we add to businesses, then - for that reason alone - I welcome it.

The Prompt Payment Code

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