Weekly Blog by Philip King, CEO of the ICM - 'Why I am not Prime Minister'

This is going to be a shorter blog than I often write and it's more of a question based on my confusion than an exposition of my views! The ministerial reshuffle announced this week includes a move that leaves me perplexed, as did an earlier decision.

In September 2012, Michael Fallon was appointed Business and Enterprise Minister replacing Mark Prisk who'd held the role for a while before that, and was moving to a housing portfolio. So far so good, and Michael Fallon made a good early impression and has been instrumental in successfully driving the prompt payment debate. Then, inexplicably to me, in March 2013 the role of Minister of State for Energy was added to his portfolio meaning he was a minister in two departments: BIS (Department for Business Innovation & Skills) and DECC (Department for Energy & Climate Change). I couldn't work out then why a minister would be given a role across two separate departments given the workload and demands of one but that's probably why I'm not Prime Minister!

In this week's reshuffle, Michael Fallon has been made Industry & Energy Minister, I presume straddling the same two departments (BIS and DECC), and Matt Hancock has been appointed Minister for Skills & Enterprise working in BIS and the Department for Education. I understand such areas as late payment will be moving to Matt Hancock's remit. I've enjoyed working with Michael Fallon and his team. I think he's been effective, and I'm sure Matt Hancock will be similarly so but my question is this: why is attention to such an issue as late payment being potentially diluted through its responsibility being added to such a diverse portfolio? An issue which affects all businesses, particularly small ones, and impacts massively on the wider economy surely deserves better.

 

Weekly blog by Philip King, CEO of the ICM - 'The price of success'

I've written several blogs about the payday loan industry in recent months saying, in summary, that I don't believe the concept of short term loans is fundamentally wrong and that emotion sometimes over-rides objectivity. But that does not mean that poor practice is ever acceptable. In particular I've ranted about the absence of evidence that affordability tests were being carried out and said the OFT should, in its final year, focus on this particular element.

Wonga's announcement that its pre-tax profits were up by 35% and bad debts were up by 89% has brought the sector back into sharp focus and - reading reports and commentaries - two things have struck me.

The first is Ian King, the Times Business Editor, observing that Wonga is one of the good guys in an industry that has appalling practices; by way of example he cites that it will not allow its customers to "roll" their loans more than three times and observes that the interest rates they charge are, for example, far lower than those incurred by running up an unauthorised bank overdraft. In my view, being cheaper than someone else isn't necessarily justification but it's certainly true and mitigates against some of the more emotional headlines we see. Indeed, elsewhere in the paper it's reported that loans cannot be rolled over more than twice and that Wonga stops racking up interest after 60 days to prevent debts spiralling too far out of control.

More worrying though is the quote from Wonga's Chief Executive, Errol Damelin, who is reported as saying Wonga loans were too small to be a significant problem and "it's very unlikely that a £200 or a £400 loan is what gets people into a financial mess". Perhaps by itself such a loan value won't, but as part of a vulnerable financial situation it can play a key role especially if it's taken out in desperation and as a last resort. I'd like to think Wonga is an exemplar in carrying out adequate and effective affordability checks but come on, Mr Damelin, get real - £400 MIGHT NOT be a problem for you but it could well be for some of your customers and potential customers!

 

 

Guest blog by Sue Kettle, Director of Membership and Support Services of the ICM - 'Love and Passion? Can this really be credit management?'

As Philip’s guest blogger, I deliberated long and hard on the theme and title of my blog. Would it be appropriate? Will it be taken in the context it’s meant? 

 

It didn’t take me long to feel at ease when I spotted a recent discussion posted on LinkedIn by a fellow colleague entitled ‘I love…’. With a smile and no real surprise I began to read the responses to the post that confirmed my thoughts. “I love the challenge” and “I love making a difference” to quotea couple.

From day one of joining ICM, and for the past 14 years, it has been so apparent from conversations with our members that the passion, commitment and excitement for credit management is boundless.

 

My early career was spent in a variety of industry sectors and I can honestly say the only passion and love I ever saw in those days was from an 11 o’clock diet coke break or an early finish.

 

One story that has always stuck with me, and I won't mention any names, was during my early days in membership when an individual who as applying to become a Member, who was so passionate about his job and his enthusiasm to join the credit community, he felt the need to call me from the bath to tell me he had reduced the companies DSO to 12 days, would this contribute to him achieving recognition as a credit professional?  To this day, he is now a long serving Member, I can't look at him with a straight face!

 

I feel, from my experience, I can honestly say credit professionals love their jobs with a passion and they are a breed that are not precious about their knowledge they have a longing desire to share and help others develop in the same way they have.

 

To all in the credit community let's nurture the professionals of the future to continue this infectious passion.

 

Yes, this really is Credit Management.

 

Sue Kettle

Director of Membership and Support Services

 

Guest blog by Charles Mayhew FICM, Director of Moreton Smith Limited –‘Brass Bands and Bacon Rolls’

I was delighted to be asked to be a guest blogger by Philip some months ago, and was wondering what I could write.

How the late payment act is working? Perhaps some interesting stories about collecting debts in the Middle East and so on? So while I was reflecting on a topic, I started remembering all the fascinating people I have met in our Industry, and of course being involved in International collections, many different nationalities.

I was recently made a Fellow of the ICM and a very proud one also. So therefore, having been the recipient of what should be perceived as an Oscar, I am hoping to thank a few people and share some stories of my 20 years in Credit - so far! It’s not over by any means.

It all started in 1994 just after I returned from living and working in Abu Dhabi with my wife and two (then) young children. I was interviewed by a distinguished American Gentleman, Stanley Tulchin of STA Associates who introduced me to the collections industry. His favourite saying was “Volume without yield is an unnecessary expense”. Wise advice from a wise man. Stanley was a great supporter of the American Collectors Association and also the NACM in the USA and insisted that we became heavily involved with the equivalent UK organisation which of course we did. I was lucky enough to travel to Chicago for the NACM conference, the same as the Annual ICM at Gaydon but much larger.

I compared notes on the ICM with Ted Brown, who was spotted in window of the Hotel opposite me in a John Cleese type moment. We couldn’t believe the massive brass band marching through the exhibition halls, the amount of people in attendance, and the lavish stands that many companies had invested in. I also attended the New Orleans NACM conference a few years later, and that was an experience. Then coming back to the UK I remember well the Liverpool and Merseyside conference and Lynne Mills enticing us all to arrive promptly with the lure of Bacon Rolls, which were delicious. It was 1998 before I became an MICM and I actually remember saying to my older brother, himself a Lieutenant Commander in the Royal Navy, that I eventually had letters after my name.

My Mum was also impressed! I joined Richard Moreton and Mark Smith in 2003 and was grateful for my time at STA but the bright lights of London beckoned, and the opportunity to become a shareholder in a growing business. Again my previous colleagues at STA were household names, who I gained invaluable experience from. Colin Thomas and Kevin Terrel, all with great sayings such as “companies owe money but people pay bills” (I don’t think that’s copyrighted though).

Philip King, Brenda Linger, Stuart Hopewell, Larry Coltman were all encouraging me along with Richard Seadon especially to apply for my fellowship. 

I am delighted that I did, it has made me even more passionate about the industry we work in, and what it has always allowed me to do is to reflect on how many good people have had an influence on my career so far. Over the years and travelling around to see many credit managers as I do, people are always quick to give an opinion on the ICM. Another saying is you only get out what you put in.

I will continue to support our professional body, and perhaps even more importantly the people who are in our industry. Socialising with them is also a healthy part of it, we call it networking. Have a great summer.

Charles Mayhew FICM

 

Next week Philip King’s guest blogger will be Sue Chapple, Head of Revenue Management of EDF Energy Plc.

 

 

Weekly Blog by Philip King, CEO of the ICM - 'Painting a grim picture of Payday lenders'

I've been inundated with government papers over the past few weeks such as the Insolvency Practitioners Fees Review, the Review of Pre-Pack Administrations, the Simpler Reporting proposals for Micro Businesses, the Money Advice Service proposals to improve the quality of Debt Advice, HMRC and DWP debt management strategies, the Treasury and FSA consultations on the transfer of consumer credit regulation from the OFT to the FCA, the proposed EU Data Protection changes, and a host more.  As a result, I've been a bit tardy in getting to read in detail the OFT's Payday Lending Compliance Review.  Its contents are shocking.

 

Let me make it clear from the outset that I am not in the 'outlaw all payday lenders' camp; I believe that such products have their place and when offered, and used, sensibly can be useful to a good many people.  But that doesn't excuse the findings in this review.  Among the highlights, or perhaps I should call them lowlights, the review reports that 28% of loans issued in 2011/12 were rolled over at least once, with at least a third of lenders actively promoting rollover at the point of sale and a number agreeing to rollover loans even after a borrower has missed a repayment.  By way of example, staff in two large high-street firms were told that rollovers were regarded as 'key profit drivers' and that staff were encouraged to promote them. In one case, this was even written into the training manual!

 

Equally worrying to me though is the absence of affordability checks.  Most lenders asserted that they undertook affordability assessments at the initial loan stage yet the vast majority were unable to provide satisfactory proof that they had applied such assessments in practice.  Only six of the 50 lenders visited were able to provide documentary evidence that they assessed consumers' likely disposable income as part of their affordability assessments.

 

The basic premise of credit management, whether the customer is a multi-national business, a small trader, or an individual, is to determine whether the customer is 'good' for the amount of credit being extended and whether it can afford to repay in accordance with the agreed terms. Furthermore, in the case of consumers, assessing creditworthiness is a requirement of the Consumer Credit Act and OFT guidelines.

I know the majority of the inspections were carried out before revised industry codes of practice and the sector-wide Good Practice Customer Charter came into force but the revelations of the report paint a wholly unacceptable picture.  The enforcement action already started and the 12 week deadline to address all areas of non-compliance is welcome, the proposed investigation by the Competition Commission makes sense, and the expectation that the FCA will take a more rigorous approach when it takes over consumer credit regulation next April is encouraging.

 

In the meantime I hope the OFT will live up to its promise that it will not gradually fade away but will continue to act vigorously in the period until it is replaced by the FCA.  A year is a long time in the consumer credit market.

 

I'll be welcoming a couple of guest blog writers over the next two weeks. Charles Wilson, Managing Director of Lovetts Solicitors, an ICM Fellow, and a member of our Technical Committee will be writing next week, and our own Debbie Tuckwood, ICM Director of Learning & Development, the week after.  I'll be decorating over Easter so will be looking forward to returning to normality thereafter!

 

 

Weekly Blog by Philip King, CEO of the ICM - 'That was the week that was!'

Firstly, we had the ICM British Credit Awards at the Park Lane, London Hilton on Wednesday last and, from all the feedback I've received so far, it was our best awards event yet, and one of the best the industry has ever seen. Over and above the joy of celebrating with all those who were short-listed for awards, and particularly with the winners, the evening was a triumph with exceptional entertainment from The Three Waiters, and superb hosting by Martin Bayfield. It was great to spend a night in the company of colleagues from across the industry and a reminder of what organisations like the ICM do so well.

 

Secondly, on Thursday, Michael Gove - the Education Minister - announced that the new draft National Curriculum for England will see financial education embedded in both mathematics and in citizenship education, making financial capability a statutory part of the curriculum for the first time ever.

 

Specifically, the new programme of study for Citizenship includes the functions and uses of money, the importance of personal budgeting, money management and a range of financial products and services in Key Stage 3, and wages, taxes, credit, debt, financial risk and a range of more sophisticated financial products and services in Key Stage 4.

 

This announcement follows a prolonged pfeg (Personal Finance Education Group) campaign supported by the All Parliamentary Group on Financial Education (chaired by my local MP, Justin Tomlinson) and by hundreds of MPs, teachers, parents, and professional bodies including the ICM. It is a triumph for pfeg which coincidentally was the chosen charity for our Awards Dinner and will benefit from the many financial pledges made on the night in its mission to support education providers in giving children and young people the skills, knowledge and confidence to manage money.

 

As I write these words, more pledge cards are still being received so we do not have a final figure of commitments made but, from our work with pfeg in recent years, I am confident that it will all be put to good use and will help to ensure that the next generation is better equipped to deal with personal finance and debt than the current generation.

 

On that subject, the ICM Think Tank this week focused on the role of the advice sector, and particularly the work of StepChange Debt Charity that has been helping people break free from problem debt for 20 years. It was useful for the group of senior executives from across the credit industry to learn more about the charity's mission and work, and to discuss the role of the advice sector and its relationships with the creditor community.

 

Finally, it was good to see the publication by the Insolvency Service of its Debt Management Plan Protocol which aims to protect and promote the needs and best interests of consumers who take out DMPs. In particular, it should help to ensure there is a greater level of consistency and transparency and weed out some of the unscrupulous operators who are conspiring to give the sector a bad name.

 

All in all a good week then!

 

Weekly blog by Philip King, CEO of the ICM -'An added perspective'

I wrote in my blog last week about the danger of imposing prescriptive maximum payment terms on UK businesses and mentioned, by way of example, the reported offering by Canon and Nokia of favourable credit terms in their bid to keep Jessops' shops open as a route to market. 

This weekend the press suggested that the music and entertainment industry is falling over itself to keep HMV outlets open with The Sunday Times carrying the headline: "Music giants rush to keep HMV alive". The report ran: "The world's biggest music labels and film studios are assembling a multi-million pound rescue package to prevent HMV from going out of business. Universal Music, Warner Music and Sony are set to cut the price of CDs and DVDs, and give the retailer generous credit terms……."

Thinking on this reminds me of the wider role that credit professionals play in their businesses beyond risk mitigation and cash collection. When I address 'credit' audiences, I frequently remind them of the value they add to their businesses by contributing to, and in many cases even driving, the sales effort and activity. I refer to examples in my own career when I used a variety of tools and tactics (perhaps archaic by today's standards!) available to me at the time ranging from a credit reference agency to identify and pre-approve business customers for a number of mobile phone connections as a way of driving sales, to creative financial packages to allow my employer (a computer manufacturer) to supply product. We had a network of dealers, few of whom were good – on a credit basis – for any supplies on open account terms at all. Escrow accounts, back-to-back deals, end-user guarantees and many more solutions enabled us to ship product that would otherwise have remained unsold in the warehouse.

And this is where credit management comes into its own; where we can demonstrate real value. It is why credit management is such a challenging and rewarding career. In my 34th year as a credit professional I still get a huge kick out of it and even greater pleasure from leading an organisation of which I'm so proud and which remains committed to delivering the vital support our members need to deliver the cash.

Weekly Blog by Philip King, CEO of the ICM - 'The case of the pickled onion'

I belong to a Vistage Chief Executives Group which provides its members with the opportunity to hear expert speakers, to share issues with other Chief Execs from different unrelated sectors and industries, and coaching. I attended a session yesterday with a workshop on negotiation run by Malcolm Smith.  He was one of the best speakers I've heard and his style, passion and energy were very impressive.  A couple of things seem worthy of mention.

We hear a great deal about large retailers exploiting smaller suppliers by demanding long and extended payment terms, and one of the things I always say is that this behaviour isn't restricted to the issue of credit. Buying power will manifest itself across all areas including credit terms, margin, price, rebates, packaging and so much more.

Malcolm shared a story from earlier this decade about how a supplier in the US was put out of business by the behaviour of a large retailer.  I don't want to go into too much detail here but, in essence, a small supplier won a contract to supply the retailer with its pickled onions which would retail at their almost standard price.  Buoyed by the prospect of massively increased sales, the company expanded by setting up new processing plants and scaling up to meet the expected demand and everything went well.  Two years later, after a process involving merchandisers, auditors (who were on the supplier's site for eighteen months), and procurement experts, the selling price was reduced to less than half and the quantity for that price was increased from a small jar of a few grams to one the size of an aquarium that was too big to carry in one hand and was branded as a 'gallon jar of pickles for $2.97'.  Not surprisingly, we were told, the company went out of business and I guess it's a case of the classic ‘if it sounds too good to be true, it probably is’.

I understand how difficult it must be to resist the demands of a large customer when that customer might be the gateway to a brilliant future but, if the ultimate price is too great, what's the point?  I've been quoted frequently saying that businesses shouldn't just roll over.  First say no, then get back to the table and negotiate what can be obtained in return, before finally walking away if that's the only option.  Accepting business, however good it seems, at suicidal terms can only be a recipe for disaster.

One of the things Malcolm talked about yesterday was the need to have a list of ‘tradables’ that could be introduced to prevent the negotiation being only about price.  I was delighted that one of the key ‘tradables’ on his list was payment terms – "yes, I can reduce the price by x% if you guarantee to pay me within 14 days rather than your standard 30, 60, or 90 days".  The thing he clearly understands that so many businesses, politicians and others do not is that payment terms are as much a part of the overall business transaction as price, colour, delivery or anything else.  When payment terms are left to be discussed after everything else has been put to bed, the only loser is likely to be the supplier!

Weekly Blog by Philip King, CEO of the ICM - 'Just the job'

Some of you who know me will know that, since I spend a fair amount of time on the road, I am an avid listener to audiobook biographies as I drive.  Last weekend I finished listening to the biography of Steve Jobs by Walter Isaacson. The audiobook is unabridged, and on 20 CDs lasting 25 hours so it took a few weeks, but what a listen and what a story!

  

I wouldn't suggest that he was an ideal role model for, in many respects, the book suggests Jobs' style and communication skills left much to be desired.  Nevertheless, he had some qualities without which Apple wouldn't have grown from a start-up in his parents' garage to the world's largest company, and without which the Apple products wouldn't have earned the reputation they have for simplicity, quality and intuitive use.  He brought ideas, art and technology together in ways that invented the future.

  

His ability to focus on a small number of projects or details to the exclusion of everything else allowed him to ensure they received absolute and undivided attention.  His relentless drive for perfection meant he never settled for second best and never compromised any of his design principles.  His ability to see the future for his and other products and predict likely trends enabled him to spot opportunities in the market that would otherwise have missed and indeed were often missed by other players already in those very markets.

  

Some leaders push innovation by being good at the big picture, others by mastering details, but Jobs did both relentlessly and delivered a range of products over 30 years that transformed whole industries.  He quoted Henry Ford as saying "If I'd asked people what they wanted, they'd have said a faster horse; our job is to show people what they can have"; Jobs believed Apple should show people what they were going to want before they knew it themselves; he said Apple's task was to read things that were not yet on the page.  When you look at the graphical interface introduced on the Mac, iTunes music downloads, iPods, the iPhone and, most recently, the iPad, it's hard not to accept that he did exactly that.

  

Perhaps the most interesting aspect of his personality was his frequently cited "reality distortion field' which resulted in him seeing things as he believed they should be rather than as they really were, and in him refusing to accept that something couldn't be achieved.  At the end of the book the author says that almost all the many people he interviewed would share a litany of examples of how badly Steve treated them but end by saying how he got them to do things they never dreamed possible and which they didn't believe they were capable of.

  

If you get the chance, it's a cracking good read (or listen) and has some great good and bad examples from both of which there is much to learn.

To find out more about the Institute of Credit Management visit www.icm.org.uk

Weekly Blog by Philip King, CEO of the ICM - 'Stating the obvious'

The Tribunals, Courts and Enforcement Act 2007 contained provisions for the regulation of bailiffs and followed a White Paper published in 2003. Since then, I have been to numerous meetings to discuss the issue and the Ministry of Justice has been repeatedly promising a consultation on detailed proposals for a new regulatory regime. When Justice Minister Jonathan Djanogly announced this week the release of updated 'National Standards for Enforcement Agents', he also promised that the Standards are 'the first step towards tackling this issue (unscrupulous bailiffs), which will be followed shortly by proposals for a new regulatory regime.' I'm heartened that at last something seems to be happening but, although I understand the consultation is expected in Spring, I'm always nervous when I see the use of words like 'shortly'. I remember the importance of SMART objectives being used in business and I sometimes wish the public sector would apply the principles by putting a specific and measurable date on actions rather than using vague descriptors like 'soon' and 'shortly'.

Anyway, back to the updated Standards. They can be found here but don't expect to be overwhelmed by their content. Creditors' responsibilities include, among other things, that they should be aware of their own responsibilities, must not seek payment in order to secure a contract, must notify the enforcement agent if the debtor pays or contacts them, and must forewarn the debtor of impending enforcement action. The section 'Professionalism and conduct of the enforcement agent' says they must act within the law at all times, must not be deceitful by misrepresentation, must not act in a threatening manner, should always produce relevant identification, must not discriminate, and a few other similar instructions.

In short, there is little in the Standards that any credit professional or enforcement agent couldn't have written on the back of an envelope if asked to suggest what they should be. As the document says, they are not legally binding, but offered as a 'helpful tool for the industry and for creditors.' As Colin Naylor, Co-Chairman of CIVEA (the Civil Enforcement Association) points out: "these are the Industry's own standards......all the signatories are already committed to the practices and standards contained in the document........and most CIVEA members already publish similar creeds of professional behaviour."

So will they have any effect on 'unscrupulous' bailiffs? I think not, and I wish the time and effort in producing them had been spent on drafting the long-promised proposals for a new regulatory regime so that the consultation can get under way and we can see some real progress.

Weekly Blog by Philip King, CEO of the ICM - 'Be careful what you wish for'

In a Financial Times survey of 83 economists (including 11 former members of the Bank of England's Monetary Policy Committee) earlier this week there was a consensus, by a majority of three to one, that the economic outlook in 2012 would deteriorate. It also showed that almost all of those expressing an opinion said the UK outlook would be much worse if the Euro collapsed. I can't say I'm surprised by the findings - I think we've all known for a while that this year is going to be tough and little better - if at all - than 2011.

I quoted Richard Tyler of the Telegraph in my blog on 1 December saying that we should all commit not to say Britain would have another recession on the basis that these things can become self-fulfilling. I'm not sure what impact our words have but I do know something of the positive impact credit professionals can have on their businesses and that is something we certainly should be talking about.

2012 is the year when we, as credit professionals, need to stand up and be counted. We need to make sure that our peers, colleagues, and Boards know and understand the contribution we can - and do - make. When a potential order is difficult to accept, we can engineer payment terms and security to make the unacceptable acceptable. When a coveted order is almost out of reach, payment terms used cleverly can make the unattainable attainable. When a situation with a debtor is looking like it could go horribly wrong, careful management and close contact can make the potentially irrecoverable recoverable.

Whatever sector and industry we work in, and whatever our role, we need to show our professionalism, be proud of our profession, and raise awareness of the significance of our contribution. Two practical steps we might take: firstly, calculate the cash-flow value of one day's sales to our businesses so we can talk about our contribution in terms of hard cash rather than the reduction of one day in DSO (the former is much more meaningful to the rest of the business). Secondly, we can show we are professionals and belong to an organisation representing our profession by wearing the new ICM badge. If you haven't got yours yet, simply send an email to members@icm.org.uk quoting your correct email address and saying how many people currently work in your credit department.

I'm not a great believer in New Year's resolutions but I do passionately believe in setting goals, and showing commitment to them by monitoring progress. For 2012, be proud of your professionalism, stand up and be counted, and don't be afraid to demonstrate your value.