Weekly Blog by Philip King, CEO of the ICM - 'Substance over form'

Am I alone in getting increasingly frustrated by politics taking precedence over substance? I've been listening in recent days to the spat between Adrian Beecroft and Vince Cable about the former's report on employment law, with Chuka Umunna's contribution adding plenty of fuel to the fire.  My frustration is that there has been very little talk about the detail of the report with most of the debate focused on whether or not Vince Cable should be called a socialist, and whether Adrian Beecroft's background (he has a career in private equity and is a substantial donor to the conservative party) makes him even the right person to write the report.

All very interesting and media worthy but what I'm more interested in is the content of the report, the recommendations it makes, and how they might – or might not – benefit the economy.  Sadly, the real detail and its potential impacts is conspicuous by its absence from most reporting.  I've downloaded the draft of 12 October 2011 and the published version of 24 October 2011 to my Kindle and will have a read through over the next couple of days.  I'll be able to draw my own conclusions then and filter out the noise of the politics and rhetoric.

On a separate note, I've had some really interesting meetings this week and will be able to share more details in my blog next week.  In essence, I've seen a really good example of the Government working with the wider business community to deliver growth through tangible and practical support.  Sometimes Government has to create an environment in which something can be created and delivered without its direct and ongoing involvement.  I believe I'm seeing an excellent example of that, but more next time…

Weekly Blog by Philip King, CEO of the ICM - 'Shooting the phoenix'

I sat on a panel at an Insolvency for Creditors event last week and there was, not surprisingly, some vigorous discussion about Pre-Pack Administrations.  There were equally strong feelings expressed at the ICM Think Tank this week when the subject came up again, and I expect to hear similarly robust views when I attend a Round Table chaired by Norman Lamb, the Minister responsible for the Insolvency Service (IS), this week.

Pre-Packs are an emotive subject but what seems to raise temperatures even higher is the issue of phoenix companies where the same directors seem to be able to acquire their previous business for a very low valuation and continue running it – often with only a slightly varied name – but without the burden of previous debts.  Often they leave unsecured creditors with a legacy of unpaid debt and the emotional reaction can hardly be a surprise.

Two sentiments were expressed at last week's event.  Firstly, Insolvency Practitioners need more power to be able to take action against directors who have clearly abused the privilege of limited liability and, secondly, the Insolvency Service should disqualify more directors.  Some in the audience were probably surprised to hear that 1,200 directors were disqualified last year and, of these, 125 were banned from holding a directorship for 10 years or more.  I accept it could be argued that these numbers should be higher but I am more concerned that there was little awareness of them.  If the credit professionals attending were surprised then so would current company directors be and the disqualification activity cannot be acting sufficiently as a deterrent.

Details of recent Insolvency Service press releases can be found here http://insolvency.presscentre.com/ and I would urge the IS do more to promote their disqualification activity.  Plenty more could and should be done, but getting this message out would be a good start.

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 - ' The long and the short of it'

I've been to some interesting meetings this week but one, in particular, reminded me of the importance of looking at both the short and the long term.

Businesses often make decisions that seem right at the time but can then look back two, five, or even 30 years later and realise how flawed their thinking must have been.  I was reading a book recently that reminded me that, in 1982, IBM didn't buy Microsoft because - at $100 million – it was too expensive, and there are countless other examples of businesses failing to take, or turning down, an opportunity that would have been transforming.  I've been listening to Steve Jobs' autobiography in the car over the last few weeks; Nolan Bushnell's decision not to invest $50,000 in return for 33% of a company that recently hit a valuation of $600 billion must stand out as the biggest of all big missed opportunities (although he's done pretty well out of speaking in public about that missed opportunity)!

It's all too easy to make decisions for the short-term that fail to cater for the long term needs of the business and we often see very senior people lose their jobs (football and FTSE100 companies are primary examples) because short term results are not good enough.  The problem with this is that short-term expediency ends up driving the organisation and that often isn't best for the business, its people, or the economy.  CIMA published a fascinating report recently called Rebooting Business: Valuing the Human Dimension.  The report draws on the experience and views of a number of senior business leaders and to quote from the summary:

"If they get the human dimension right, companies will be able to focus their resources on the right things and create value for the long term.  One of the greatest challenges to realising the potential of the human dimension is the level of focus on quarterly reporting and short-term results. The value that people add will not appear in the quarterly reports and may not be apparent in the short run, but it must be given its due if we expect to make the right decisions.  Adopting strategies that will sustain success for a business is not a 'nice to have'………….."

One of the ICM's key priorities is to work with organisations and individuals to raise the value of the human dimension in business by developing the careers of credit professionals and by raising the performance of the teams they work in and run.  It's great to hear serious business leaders recognising that people are as important as numbers, and need to be a priority for sustainable business.

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.   

Weekly Blog by Philip King, CEO of the ICM - 'Putting the lifeblood back into business'

The highly regarded Ernst & Young Item Club came out at the weekend with a forecast growth for the year of a dismal 0.4%. Although Item Club uses the same economic models as the Treasury, its forecast was much worse than the Treasury's a few weeks ago. Speaking on Radio 4 earlier in the week, its commentator attributed this largely to timing and the dynamic nature of economic factors. The Club says Britain's economic growth will remain anaemic because companies are hoarding their cash, and it will stay on the "critical list" until companies start spending again.

I talk to many businesses of all shapes and sizes and the vast majority tell me that they are struggling to find customers who are willing to spend or make significant investments. This is a feeling particularly prevalent among the SME community whose fundamental priority seems to be one of survival rather than planning for growth or expansion. We're all waiting for real signs of recovery before we can start to feel confident, and until confidence returns we won't want to spend or invest. Until we do, however, "Britain's economic growth will remain anaemic because companies are hording their cash, and it will stay on the "critical list"......" (see above). It seems like the classic vicious circle to me!

There is one thing that companies could do though that would generate cash-flow for the whole business community and would definitely aid economic recovery. Pay their bills on time! Some do, and there are examples of really good practice, but many - big and small - don't, and because of that their suppliers struggle for healthy cash-flow and in some cases fail to survive. The Prompt Payment Code hosted by the ICM for BIS was launched to help change the culture to one where paying on time and to the agreed payment terms was the norm rather than the exception. Well in excess of a thousand organisations have signed up to the Code but many more could do so.

Paying on time has many advantages: it releases money tied up in unpaid debtors; it allows business owners to focus on selling and providing a better service rather than chasing payment from tardy customers; and ultimately it helps more businesses to survive and prosper. The Prompt Payment Code can be found at http://www.promptpaymentcode.org.uk/.

Weekly Blog by Philip King, CEO of the ICM - 'The real definition of professionalism'

A month ago I started a discussion on the ICM Credit Community Group on LinkedIn asking: "What does professionalism mean to you?" The question generated some great responses that used words and phrases including: fair; knowledgeable; focused; integrity; confidence; experience; seeing the bigger picture; keeping up to date; reputation; experience; considered judgment; ethics; calmness; credibility; and stability.

Yesterday I spent a long day in a London office meeting a series of people who demonstrated professionalism in credit management in the truest sense - they were credible, competent and could obviously apply their knowledge in the real business world. Although not the strict definition, I believe someone displaying professionalism is someone who exudes a sense of confidence in themselves and to those around them. After all, that confidence comes from all the qualities and attributes mentioned above. If I'm going to rely on someone in any walk of life I'm going to want them to be confident in themselves and I'm going to want to sense that confidence when I'm in contact with them.

The ICM in recent times has been particularly encouraging its members to be proud of their professionalism and not to be 'shrinking violets'. Good credit management is vital to the sustainability and success of businesses and we shouldn't be afraid to say so, nor to broadcast the value we add to our organisations. A recent web clipping of a survey by Marks Sattin, a recruitment organisation, shows that pay rises for credit managers averaged 7% last year and were three times greater than those of other accountancy professionals. The accompanying press release talks about the enhanced significance and greater prominence given to credit management and supports the Institute's argument that the contribution of credit professionals is invaluable and indisputable.

Sadly, we all see examples of people showing a real lack of professionalism (including from time to time by their comments and behaviours on LinkedIn discussion forums and elsewhere) but let's make sure that those individuals remain a small minority and that we can genuinely be proud of our profession. If you're an ICM member and want to demonstrate your pride by wearing an ICM Badge, please simply send an email to members@icm.org.uk quoting your correct email address, saying how many people currently work in your credit department, and telling us the single most important thing you value from your ICM membership.

Finally can I remind you that the ICM Member Survey is still open and you can complete it here. We've been overwhelmed by the response to date but the more responses we have, the better informed will be our future planning. Can I also remind you that the latest ICM UK Credit Managers' Index opened this week - so please join the panel and respond here.