Risky Business

SMEs seek out working capital management education

2008-08-27T11:47:32Z

There's nothing like an economic downturn to focus corporate minds on just how important cash flow management is to a business. Accountancy Age reported a few weeks ago that the major accountancy firms were seeing an upsurge in demand for working capital advice, but that was coming from larger corporates.
However, sales of Graydon's open training courses on the Basics of Credit Control and Understanding Credit Information are up 60% this year. Normally, these courses are bought by medium sized companies wanting to educate newcomers to their credit departments, however, there is a new trend developing.......it would appear that many new sign ups to the courses are SME owners wanting to develop credit management skills in order to ensure they collect cash in from customers quicker. actually, course tutors report that this makes for an interesting mix, as credit controllers/managers rub shoulders with small business owners to exchange experiences.
we hear a lot of people calling for the government to step in and help SMEs survive the credit crunch, but its good to see that some businesses at least are recognising the challenge ahead, and deciding to do things off their own bat.... a toast please for the small business entrepreneur!!

Picture on Director Private address disclosure gets clearer

2008-08-21T09:35:10Z

The Government in the shape of BERR has just published its response to responses to consultation on a key aspect of the 2006 Companies Act relating to directors private address disclosure. This part of the 2006 Act will come into effect 1st October 2009.
The plan is now that Companies House will be able to sell private address details to public authorities and credit reference agencies like Graydon and Experian in bulk form. These organisations will be able to use this data for credit vetting purposes when checking the creditworthiness of companies and individuals, but will not be able to pass on the actual private address details to end users or lenders within credit reports etc. Apparently there was an argument put forward that suggested agencies should be able to pass on this data to their clients so long as the data subject gave consent. However the government has rejected this idea, saying that it would enable persons to gain access to protected information (private addresses of directors) although they are barred by statute from direct access to it.

Obviously this law has to go through the Houses of Parliament, but it looks as if the NEW 2006 Companies Act will come into force before it becomes the VERY OLD 2006 Companies Act.

STORM CLOUDS HANG OVER UK

2008-08-15T09:48:18Z

Back in June on this blog, I asked the question whether we were experiencing a calm before the storm, as the effects of the credit crunch, rising fuel and utility prices had yet to be seen in any insolvency stats etc.
However, like the weather we have been experiencing this summer, storm clouds are beginning to settle over corporate Britain too, and now government figures are bearing this out. The liquidation figures for the second quarter of 2008 in England and wales hit 3, 689- the worst quarterly figure for 5 years. A lot has to happen to reach the liquidation levels seen at the peak of the last economic downturn of 1992 (24, 425 liquidations in total), but the signs are pointing that way I'm afraid.

Looks like the weather ahead is not only good for ducks- insolvency practitioners and turnround specialists will also be advantaged by the poor conditions hovering over the country at present.

Government's wrong signal on late payments

2008-08-04T14:06:05Z

At the weekend, I learned that BERR has completely withdrawn funding support for the website, "payontime.co.uk", run by the Better Payment Practice Group- a lobby group that encourages companies to pay their bills on time. Not great timing on behalf of the government, especially when there is so much in the press about SMEs suffering cash flow difficulties due to slow trade payments from big company clients. Perhaps BERR is fed up with flogging a dead horse on this issue. Far from improving, trade payments are getting worse and worse.
Only last week, Matalan, the fashion retailer, announced that it will be imposing a 2% "contribution" discount on all supplier invoices in order to fund future investment in its business- the argument being that suppliers will be able to grow on the back of Matalan's future growth.Thanks, but if I was a supplier, I might have chosen to invest directly in my own business first - given the choice!

BERR has said it is still engaging with "experts" on the subject of late payments, and is also exploring non legislative approaches to tackle the problem. Given the fact that the current government has plenty of things to worry about at the present time, I don't expect immediate action on the subject.
I advise SMEs in particular to seek advice from their bankers or accountants as to how they can improve their credit management skill sets as a matter of some urgency.

Late payments- Are governments leading by example?

2008-07-24T09:46:27Z

All this talk in the press about Government being urged to intervene on behalf of small businesses to clean up late payment culture in this country.........I'm not sure lobbyists are knocking on the right door. Government agencies like the NHS have often been criticised by their own suppliers for tardy trade payments..... DEFRA was another example that took years to finally pay contractors for the clean up operation following the foot and mouth crisis in 2002.
Now I read that the EU Ombudsman has reported on his investigation into complaints that the EU doesn't settle its own bills to suppliers. He has concluded that 300, 000 GBP was paid out to disgruntled suppliers in interest alone last year (and that's coming out of taxpayers money don't forget!). He also estimates that 22% of payments were delayed by the EU last year with an average delay of 48 days.

When government departments clean up their own act when it comes to paying bills on time, large organisations may become more concerned about their own trade payment practices. So long as Government bodies say one thing , and do another, the pressure for change won't amount to much.

Corporation Tax Surcharge for late paying PLCs?

2008-07-22T11:50:58Z

A whole host of news stories are appearing in the national press about large companies bullying their suppliers by extending payment terms......in some cases beyond 100 days. According to the Federation of Small Businesses, this " outrageous" practice is really putting a big cash flow strain on its members, at a time when they can ill afford it. This lack of corporate social conscience amongst our largest organisations has been festering for the last couple of years, but the problem has undoubtedly escalated since the credit crunch began.

One on line reader of the Times yesterday suggested that the Government impose a 2% surcharge on Corporation Tax for large companies whose DPO (Days Purchases Outstanding) registered over 60 days for example.Others are suggesting that BERR inspectors should be employed to do spot checks on large companies' finance departments, and financial penalties imposed if they find Aged Creditor lists not to their liking. I'm not sure what the answer is, but it's clear SME's are getting very agitated, and the government will do well to pay attention to their cries for help.

SMEs don't credit check - is it price or an education issue?

2008-07-10T15:45:03Z

I was a bit surprised to read in the Daily Telegraph on the 8th july about a Barclays Bank idea to offer free of charge credit checks to its 580, 000 corporate customers. OK, the service is only a plan and I'm not sure where they're going to find millions of free credit reports to give away, but the more interesting aspect of the piece by Richard Tyler was that he quoted Barclays as saying that small businesses didn't do credit checks on customers due largely to the cost of such services from the established agencies. First of all, i have to say Barclays is absolutely right to say that a large majority of small businesses don't avail themselves of credit reports before opening up accounts. However, it is also true that prices of credit reports have dropped considerably over the years, and there are many credit agencies offering tailor made products at low prices to small businesses nowadays. Personally, I think the reason why SME's don't use credit reports is more to do with a lack of credit management expertise within SMEs- and that's not a criticism; its a fact that most businesses under 6 million turnover don't employ professional credit managers who know all the tricks to get cash in quicker and to avoid bad debts and protracted payments. Most small businesses don't have any finance department specialists, as their businesses are too small to sustain them. Therefore, SMEs really do need a lot of help from their accountants and other external advisers, which is why i think Barclays should at least be patted on the back for trying to tackle the issue.

A blog about corporate blagging

2008-07-03T15:41:45Z

BDO Stoy Hayward's recent research suggests the credit crunch is pushing up the levels of corporate fraud. Of course, as always, internal fraud makes up a large part of the overall picture. Stories reaching my ears in the last few weeks involve sales personnel "upping" their business mileage, and therefore travel expenses, thinking that artificial increases in petrol costs will be disguised by the real increases at the pumps. Others involve simple pilfering of stock from company premises.
One financial controller I spoke to on the subject who lived through the last economic downturn in the early nineties had a good piece of advice. He said that companies should organise employee training sessions on fraud policy. His belief is that this immediately demonstrates to staff that you are being vigilant. Employees, who for the most part are not "thieves" but may be feeling the economic pinch, may be dissuaded from crossing the line. Wise words, as prevention is always better than the cure.

BIG Customers not paying on time?

2008-07-01T10:04:02Z

For some suppliers, the biggest frustration is when large "creditworthy" clients insist on holding onto their cash beyond the supplier's well established payment terms. In many cases, suppliers put up with this situation for fear of losing the business, and this puts a strain on their cash flow. One novel way of getting round this problem is offered by purchasing companies like Javelin Wholesale in London. In effect, the cash struck company makes specific purchases of it's own supplies through Javelin. Javelin pays the supplier to their terms, but allows its client to enjoy extended credit of up to 120 days. So, if you have to wait 50/60/70/80 days to get paid, at least you aren't put under pressure by your own suppliers to pay your bills on 30. One of the benefits of this new approach to safeguarding cash flow is that unlike invoice discounting, it doesn't involve security i.e. no debenture or secured charges over your assets are involved.
This idea is a new one on me, but I'd be interested in hearing of anyone's experience. What it does demonstrate is that where there is a need in the market, businesses will try to come up with new services that attempt to satisfy that demand.

DOES THE EU's SMALL BUSINESS ACT ADDRESS THE BIG ISSUES?

2008-06-27T10:57:36Z

The long awaited EU Small Business Act was unveiled this week, which hopefully will persuade member state governments to make more efforts in putting small businesses first, thus helping to create a better environment for small businesses to prosper. However, some groups have already criticised the lack of effort from European lawmakers in coming to terms with the perennial problem of late trade payments. This was an area that was supposed to be tackled more seriously in this new ACT, but wasn't.
According to a recent survey undertaken by the small business champions the Forum of Private Business, 81% of respondents said that trade payments had deteriorated in the last year, and more worryingly, 33% said that because of this issue, they were in danger of going into administration, through lack of cash flow. Helping small businesses by reducing administrative burden, providing better access to finance and public procurement are all to be welcomed, but the big issue of delayed payments remains to be tackled by lawmakers both here in the UK and in Brussels, judging by this latest piece of legislation.

Supermarkets or High Street Retailers- where's the difference?

2008-06-26T10:52:35Z

I've recently received an invitation to a symposium in July to discuss the Competition Commission's recent proposal to set up a Grocery Ombudsman to check on the affairs of the big supermarkets. After its inquiry into the grocery trade, it was the CC's view that some large supermarkets are responsible for transferring " excessive risk and unexpected costs" on to their suppliers.
It should be interesting to find out how Peter Freeman, Chairman of the CC and Keynote Speaker at the symposium, is going about setting up a new Supermarket Code of Practice and the Grocery Ombudsman position itself.
However, I read in the Sunday Times last week about Debenhams extending its payments to suppliers to 96 days amid claims that trading conditions "are deteriorating". Debenhams join B&Q, Boots Alliance and Selfridges among other high street giants, in a list of companies that believe it's perfectly OK to pass on any pain to suppliers in order to safeguard their own profit margins. In this respect, there doesn't seem to be much difference between the supermarket chains and other high street outlets. Maybe the supermarkets are right to moan about the fact they are facing the introduction of an Ombudsman to scrutinise their dealings with suppliers, whilst other retailers down the road from them are free to adopt similar tactics without fear of reprisal from the authoriies. Who said life was fair? Ask any trade supplier!

CREDIT CRUNCH- the calm before the storm?

2008-06-18T13:51:01Z

Credit people have been talking about the credit crunch and it's potential fallout since last autumn, but despite all the gloom and doom merchants around, the impact is still not being felt in the general market to the level that was anticipated. Okay, credit insurers are reporting that claims are going up, and so is debt collection work, but any substantial increase in liquidations figures are conspicuous by their absence so far. This was also confirmed this morning when I spoke to one of the leading insolvency practitioners- any significant increase in workload hasn't come through yet.

Let's hope this is all good news, but most credit experts are sticking to their assessment that we may all be in for a period of more difficult trading and risk conditions lasting between 12 and 24 months. Are we therefore experiencing the calm before the storm?

CREDIT STRATEGIES FOR TURBULENT TIMES

2008-06-13T12:10:47Z

Since the last two big economic downturns in the Uk (the industry led "Thatcher" recession of 1979/81 and the consumer led "ERM" recession of the early nineties,) the stable ,relatively calm economic waters have been good to UK credit managers.

Due largely to the computerisation of bulk credit data in the nineties, the barriers of entry into the credit information market have come down, and as a result, credit managers have more choice of agency at far lower prices.Some agencies offer very low prices based on the regurgitation of public record data from the CRO with an appended credit rating. And in the prevailing calm conditions in the last fifteen years, whatever agency was selected, the predictive qualites of credit reports were perceived by the market as "much of a muchness."

The predictive quality of credit reports didn't even seem to be affected by the deterioration in the quality of financials filed at Companies House. As I write, 85% of accounts at CRO are abbreviated and unaudited. To make matters worse, criminals have read the disclaimer on the CRO website saying that accounts lodged there are received "in good faith" and are not validated or verified, and have bombarded Companies House with fictitious documents in order to perpetrate frauds.

The new breed of credit manager has been brought up on this diet, and many have no appreciation of what past generations of credit managers saw in their credit reports, unless of course they continue to use the services of traditional agencies like D&B, Graydon and Experian who still add trade payment data, edit trade magazines, and interview companies to add value to their products.

In turbulent times, a credit report must surely be more than a revamped Companies House image document with an automatic rating attached? The low cost, no added value credit report has bloomed in "fair weather" conditions over recent years, but will it do the job in bleaker conditions like the ones we are facing now?

Identity theft- A case of demography or geography?

2008-06-03T09:26:26Z

At least us Brits are not alone in facing an identity theft epidemic. In the USA, it's the country's fastest growing crime. The Federal Trade Commission in the States undertakes surveys each year and tries to understand why and how these crimes are being committed. On the surface, what might seem strange is that Arizona is the identity theft hot spot state in the union, followed by California, Texas, Nevada and Florida.

Commentators, particularly from the Right, point to the fact that these are all border states, where illegal immigration may be fuelling the theft of US citizens' identities. Others suggest Arizona is perched on top of the list because it has a large older population more easily fooled by pfishers and other identity thieves. It has also been suggested that Arizona has a high incidence of methamphetimine users, and that identity theft is a popular "non violent" way to finance drug habits.

London and the Southeast see almost 50% of identity theft crimes in the UK, whereas Northern Ireland sees only 1% of the UK total. Is illegal immigration the big factor here? Or illicit drugs? Is anyone in the UK doing similar work to the FTC in the States to try to understand the causes, or are we content just to record the statistics?

MPs scrutinise Companies House

2008-06-02T11:05:57Z

Unhappy with some of the user complaints about activity at Companies House and delays in implementing aspects of the new Companies Act , a BERR committee of MPs met up recently with senior executives at the CRO in an oral evidence session. MPs heard that the public fears over false information being filed at Companies Registry by "would be" fraudsters and the like are justified, in that very little information coming into Companies House is actually verfied or validated by staff there. The CRO chief executive complained that too few companies had taken up the system of electronic filing of director changes etc called "PROOF", which would substantially cut down on the incidences of identity theft at CRO. When the BERR commitee asked whether making the system compulsory would greatly reduce the identity theft problem, the CRO said yes. One committee member commented " I feel a strong recommendation to Government coming here". Personally, I would back such a move because in this instance, i totally endorse the CRO's view that electronic filing of such changes would make it more difficult for opportunist criminals to fiddle with public records.