Risky Business

Government calls time on supermarket power over suppliers

Wed, 03 Feb 2010 16:39:10 +0000

Well its taken a fair while, but what started as the Competition Commission's investigation into the activity of supermarket giants back in 2006 is soon to end with a new code of practice from feb 4th, to be enforced by an independent Ombudsman- much to the chagrin of the giant retailers themselves of course.
During January, Kevin Brennan, the Consumer affairs minister, announced that he had decided to take on board the recommendation of the CC, given to him last summer, that an independent Ombudsman was necessary to ensure the new "fairer " code of practice was adhered to by the supermarkets. The actual appointment of an Ombudsman may still take a few months, but the move has been welcomed by all kinds of groups keen to see supermarket power over its trade suppliers controlled.

Supermarket spokesmen have already pointed out that the cost of the Ombudsman will probably mean higher prices on the shelves. Maybe this is true, but it must also be true that consumer prices have been kept low in the past because of unchecked supermarket purchasing power. If the Competition Commission has deemed that some trade practices in the grocery trade have given the giant retailers an unfair competitive edge over smaller rivals, whilst hurting the cash flow and profitability of trade suppliers, aren't higher prices worth paying to put things right? After all, i'm sure shelf prices would be a lot lower if supermarkets stole goods from suppliers, but no one in their right mind, including the supermarkets, would condone that practice. Correct? I'm sure supermarkets, suppliers, Government and consumers all want to see fairness in the way we do business in this country. It makes us all feel better about ourselves!

Can Accountants Do More to help SMEs obtain bank support?

Tue, 02 Feb 2010 09:45:08 +0000

Some say they are.....A lot say they aren't..... but the debate as to whether banks are lending to SMEs during this ongoing economic crisis rumbles on. There must be a whole load of reasons why some SMEs succeed in persuading banks that they are worth the punt, and then again, a number of reasons why banks turn down loan applications.
I was down in Westminster the other day talking to a Trade Credit insider at the government's BIS department to learn of one big reason that prevents banks from lending. Apparently, from evidence that the banks have shown to BIS officials, its clear that many applications from SMEs are woefully inadequate. Which raises a big question in my mind...... are SMEs trying to obtain advice from accountants on how to pitch for a business loan i.e. what should a loan application be supported with (management accounts, cash flow forecast, breakeven analysis, yearly business plan?)
If SMEs aren't asking for this advice from their financial advisers, they should be. Many business owners are good at what they do on a day to day basis when running their businesses, but pitching to a bank for a loan in this economic climate calls for a degree of expertise that I would guess sits outside the average SME owner's comfort zone. Perhaps accountants should come forward a bit more to proactively market this type of service to the SME community, as clearly, there is a gap in the market that needs filling. Maybe some accountants are helping their small clients obtain bank support by offering advice on shaping a loan application. If you do, I'd like to hear from you because i reckon you're the exception to the rule based on the evidence I can see.

Positive credit scores lead to better cash flow!

Thu, 28 Jan 2010 12:42:03 +0000

As a credit information man, I'm always trying to persuade businesses that good credit scores can directly impact their cash flow positions, so i was particularly pleased to hear yet more clear evidence yesterday from a bunch of credit managers as to how this can happen, in order to back up my perennial arguments on the subject.

Many credit departments nowadays are buying in software packages that help drive cash collection actions. Yesterday i heard from credit managers who allocate colour codes (green, amber , and red) to all existing credit accounts on their sales ledgers depending on the credit scores of their clients. If payments become overdue from a "green" client (one who has a good credit rating), some leeway is given before chasing up strenuously , whilst if payments are beyond due date from a "red" client, they're chased immediately for the money. thus proving that companies with good credit scores can obtain extended credit far more easily than poor rated ones. if the "green" client has 15 or so more days in which to pay because the supplier has less concern about a bad debt arising, you can see how less pressure is brought to bear on his cash flow position, particularly if this was repeated many times over by different suppliers.
Companies should understand much more about how their credit ratings are produced by agencies like Graydon and D&B, and what they can do to try and improve their own credit ratings. As an industry, the credit reference fraternity is realising that its got to be more transparent about how it goes about its business, so expect some useful material on the subject coming into the market soon- that's a promise!

HMRC makes Eagles fans "Sick as Parrots"

Wed, 27 Jan 2010 12:34:59 +0000

These are indeed troubling times for football fans. Diehards no longer have to fret about league results or the threat of relegation- they're more anxious nowadays about the financial situations of their beloved but debt laden clubs.
Yesterday came sad news for Crystal Palace fans. Eagles fans saw their club go into administration when cash strapped owners couldn't find the money to pay off the HMRC.
HMRC, the biggest petitioners for Winding ups in the courts due to unpaid tax bills, can do more damage to the reputation of the football league as they petition for the winding up of four further clubs- Notts County, Cardiff City, Portsmouth and Accrington Stanley.
Its a sad state of affairs when even the most famous clubs in the land like Manchester United and West Ham are up to their ears in debt, causing all kinds of sleepless nights for their supporters despite the fact that affairs on the pitch are far from a major concern.
I don't blame HMRC though- company directors that run football clubs should act the same as any other company director in the country no matter what line of business they're in - with responsibility and with an eye on the future. If football directors could achieve this- now that would be a result worth celebrating !

10 DAY Government payment Pledge a Failure

Mon, 18 Jan 2010 15:53:42 +0000

Over a year ago, cash strapped small businesses were given a pledge by Lord Mandelson stating that Government departments would pay trade invoices within 10 days. Research recently carried out by Graydon amongst 320 companies supplying government departments says that 98% fail to get their money within the promised time frame. Worse, some 60 odd percent say they are paid later than 30 days after the invoice date.
Was this government pledge another example of government rhetoric aimed at calming the nerves of the business nation in the midst of a severe recession, without any real hope of proving deliverable?
Some would argue that this policy follows in the footsteps of the Top up Credit Insurance scheme and the Enterprise Finance guarantee Scheme- other "Made in Recessionary UK" products that really failed to deliver what they were meant to, to help the country through the downturn.
All these government initiatives, whilst laudable in conceptual terms, have clearly demonstrated that government machinery does not readily respond to the demands made of it by its bosses, and brings to mind the rather amusing antics of the senior civil servants in that never to be forgotten comedy series "Yes Minister". The PM and his cabinet colleagues may think they're in charge, but who really pulls the strings of power in this country of ours?

Insider's right- Fraud keeps on growing

Tue, 12 Jan 2010 09:27:39 +0000

My colleague blogger "Insider" wrote yesterday about the growing menace of fraud. No doubt, things get worse when people get desperate in a recession.
However, there are some underlying problems facing our society when one looks at the crime of fraud. All criminals are opportunists, and those ready to commit fraud are no exception. Criminals also believe that they will get away with their misdemeanors. The problem with fraud is that from a police perspective, it is not a high priority crime. I'm sure the public would be up in arms if the Constabulary announced they were taking officers off anti terrorism and knife crime in order to fight fraud. Commercial fraud, much of it "white collar" crime, seems to be seen by many policemen as victimless i.e. if companies lose money, they can just write it off as a bad debt etc.
If the criminal fraternity or desperate "recession hit" business people think the police aren't that interested in pursuing fraudsters, the crime is made more attractive to perpetrate.
It's also true that fraud convictions are notoriously difficult to obtain in the courts. A personal experience gives an insight into why this could be.
I was once invited by the authorities to do my duty as a juror at Knightsbridge Crown Court. On one morning, I was asked to come into a courtroom, where the judge explained we would be asked to become jurors in a complicated fraud case that might last four months. Business executives on the jury like me soon put their hands up to ask to be excused from the case as they couldn't afford to be away from their jobs for that long. Several of us left the room excused from duty, leaving a couple of housewives, two london transport workers, and a shop assistant still there from the original pool of jurors. i guess the process continued when the next batch of potential jurors was hauled in to the courtroom. Get my point?

Recession affects Birth rates as well as death rates

Mon, 11 Jan 2010 15:16:38 +0000

It is an undeniable fact that in a recession, parents seem to take on board the economic environment and postpone having babies until financial circumstances improve. In America for instance, statistics show that the country's birth rate dropped by 2% in 2008- the worst decline in four decades.
However, recent figures from the UK Government Office for National Statisitics, published on 30th november 2009, also point to the fact that company births have been impacted by the recession. In 2008, new company start ups fell 3.7% compared to 2007. ( down from 281, 000 to 270, 000). Mind you, these figures shouldn't come as much of a surprise. Many entrepreneurs act very much like "wannabe parents" in as much as if they think the economic conditions are not right to help their "babies" develop healthily through the early years, they are very likely to delay the birth until favourable conditions return.
Quite understandably, economic commentators concentrate very heavily on insolvency stats during a recession to see how bad things might be; what I'm saying is that there is another side to the coin. When company start up numbers begin to climb again, it will be a sure sign that on the ground, optimism among business people is on the up again.

HMRC's tax deferral scheme delaying the inevitable?

Fri, 18 Dec 2009 16:38:23 +0000

Companies who have taken advantage of HMRC's Business Payments Support Service during the recession, which allowed them to defer tax payments in order to stave off insolvency, had better be in much better shape in 2010.
Sorry to put a dampener on peoples' Christmas spirits, but I suspect the tradtional increase in insolvencies seen coming out of a recession will be exacerbated in 2010 when the Taxman comes a calling looking for repayment of deferred tax. Some companies who are still suffering in the economic downturn may not be able to afford the bill.
During the recession, the HMRC agreed deferred payments with over 200, 000 companies. But this empathy with cash strapped organisations can't continue forever, particularly with the government having such a big hole in its coffers. The other thing we should not overlook is that the Taxman is on record as the biggest Petitioner for Winding Up companies in the Courts (for non payment of tax debts.)
I reckon therefore that all the signs point to the HMRC taking a firmer line in collecting what is owed to them in 2010, and those companies still left struggling to make ends meet after 2 years of economic downturn are likely to perish.
For many, the HMRC's deferred tax scheme has been a real life saver- for others I fear, it has simply delayed an inevitable demise.

SMEs finding problems securing bank loans

Tue, 15 Dec 2009 10:58:30 +0000

"Insufficient security " has been given as the biggest reason behind Banks' rejection of loan requests by SMEs, according to research soon to be published by Graydon and the Forum For Private Business. According to around 750 respondents in the research, Banks used this as the excuse for turning down facilities in nearly 42% of cases. It seems a little strange to me that lots of businesses approached their banks looking for money without the possibility of putting up some collateral to cover the amount, because it is a well known fact that banks don't lend money too often without that security in place.

Speculating a little, I suspect this situation may have come about due to falling property prices. In the good times and in a rising house market, there would be much more scope for owners of businesses to increase their mortgage on their houses as security against business loans, but in the falling housing market of 2008/2009, that option evaporated in many cases.
Whatever, other aspects of the research to be published in the New Year points to a renewed optimism amongst the SME community that growth is just around the corner. Let's hope that it is optimism built on solid foundations, rather than naivity and wishful thinking.

SMEs face stark choices as credit crisis rumbles on

Tue, 10 Nov 2009 11:39:59 +0000

Should I be more interested in Income Tax avoidance schemes or looking after the longer term solvency of my business? Some SME owners are facing up to this issue before next April's hike in the higher rate of income tax to 50% comes into play .

Tax partners at accountancy firms are reporting that many business owners are contemplating paying out bumper dividends to family members prior to the personal income tax rise in April next year as dividends are taxed at much lower rates. But are they only contemplating this action as a result of advice accountants are giving them?
Some tax experts are openly saying that this type of move by business owners is very legitimate and understandable tax planning....... but in the middle of a recession, are some accountants sending out the wrong message to small firms?

I read an alternative view in the Daily Telegraph in early November when Richard Mannion, national tax director of Smith & Williamson, stated that many companies recovering from the recession may well be advised to reduce dividend payments to protect their reserves. Reducing shareholders equity by paying larger than normal dividends out of retained profits will not do wonders for long term solvency- nor, might I add as a credit agency man, will it do much for company credit ratings, at a time when SMEs in particular are finding it difficult to obtain credit and finance.

I guess at the end of the day, all business owners have choices. After all, if you own and run a business, you can pay yourself what you like. You are also free to try and minimise your tax bill. My point is that accountants should at least advise business owners that there are consequences to any business decision, and that decisions should be taken on an informed basis. What i don't want to hear next year is a bunch of small business owners who've paid out big dividends before April 2010 bleating on about their inability to get credit from credit granters. You pays your money.. and takes your choice!

The credit problem for SMEs- you're just not getting it!

Thu, 05 Nov 2009 11:26:30 +0000

I was driving into work this morning listening to 5 Live on the radio, and hearing some good points being made by the chief economist of the British Chambers of Commerce about banks' on going reluctance to lend to small businesses. Quantatitive easing has helped the general economy, but it still hasn't eased the credit crisis for many many SMEs. The BCC economist suggested that perhaps the government could arrange a reduction in the interest % paid by the Bank of England to commercial banks on monies on deposit with the central bank- that might get them lending more. The BCC also argued that banks may be exaggerating the risks posed by SMEs.
Why could this be?
Well, in my opinion, and I've mentioned this issue before in this blog, it is a sad fact that the majority of small businesses in the UK suffer from an Above Normal credit rating with Credit reference agencies in this country, not because of a mass of negative data but because of the sheer absence of data on file in order to create a good credit score.
SMEs, and accountants that supposedly work on their behalf and in their best interests as professional advisers should be doing something about this poor state of affairs. There is only one answer- SMES must stop looking at credit ratings as a weapon used by large corporates and financial lenders to hit them with, and instead, see them as tools to help them obtain better credit lines. In my opinion, many accountants and government departments have fostered the idea amongst SMEs that "less is best" when it comes to financial performance transparency- look at the law changes over the last few years relating to statutory filing requirements for SMEs as one big example! Even non financial information like how many years a business has been established, and number of staff employed can actually help a credit score improve- but that information has to be fed through to the credit agencies. Yes, governments, banks, insurers can all play their part in helping SMEs obtain more credit- but equally this has got to be a case of "Physician - heal thyself! "

More Bank competition spells good news for credit crunched SMEs

Wed, 04 Nov 2009 12:14:33 +0000

Things are looking up for the UK economy and SMEs in particular. A couple of new surveys suggest that the country may be on its way out of recession in October as manufacturing and service sector activity barometers show a real upswing. This is happening despite the fact that small businesses are still reporting that access to finance is difficult, or is being offered at a high price. That's what i liked about the news filtering through yesterday about the planned introduction of new bank networks from next year. Whilst the likes of new entrants like Virgin, Tesco and Metrobank will aim primarily at the consumer, small business banking must be in their sights too. Although the main attractions planned to win customers over will be convenience of opening times and client service in general, its bound to be the case with newcomers that they get nicely competitive on interest rates, or at least, will handle requests for loans with care before accepting or rejecting them.
There's nothing like a bit of extra competition- the established, somewhat tarnished high street banks will have to respond to the new world of british banking- and this can only mean a brighter outlook for British businesses who have been suffering in this credit crisis for far too long already.

Pre Packs Come in for more Criticism, despite burger bar rescue.

Tue, 13 Oct 2009 11:17:47 +0000

Tootsies, the burger restaurant chain, appears to have got itself into a financial pickle, and has, as a result, been sold to Giraffe Concepts in yet another pre pack administration deal.
As usual, the headline benefit from the deal is that jobs have been saved (in this case 278), but that won't stop the ongoing complaints about the growing popularity of the pre pack. Unsecured trade creditors have been particularly vocal in their criticism of the "behind closed doors" nature of the pre pack rescue.
Even more interesting then to see that PWC's Turnaround Director Panel has recently stated in a report that pre packs may be "morally questionable" and "unacceptable".
The trouble is, how can they be stopped? By all accounts, the trouble with traditional "open" administrations in this current economic climate is that the breathing space companies need to continue trading while in administration (from banks, trade suppliers etc) is too difficult to secure. What PWC is saying is that the tide can not be turned away from the pre pack rescue of ailing concerns, but that wise heads in the IP profession should come up with better ways to make the process more transparent, so that trade creditors don't feel so hard done by.

Want Credit? Show us your books then!

Mon, 05 Oct 2009 16:14:33 +0000

Banks, credit insurers and trade suppliers have all been banging a drum for the last nine months about how important it is for SMEs to open up their management accounts if they want access to credit and finance in today's "credit crunch" world.
I'm just wondering how much of this message has got through to Britain's traditional conservative small businessmen. Has there been a gradual, albeit reticent, acceptance by SMEs that larger organisations won't make credit decisions based on what they suspect is out of date information from Companies House?
Talking to some accountants the other day, the same old tired arguments come out of the woodwork as to why SMEs won't open up their books to obtain credit facilities. "The competition will see what we're up to!" is one old barrier erected. Boy, that's going to stop a successful business in its tracks isn't it?
"They're none of your business.What's my accounts got to do with you? "
Well, if a credit insurer is being asked to cover the risk of default on behalf of one of its policyholders wanting to trade with you, quite a bit actually.

Next week, a new service is going to launched which will provide an easy way for SMEs to make extracts of their management accounts available to the outside world in order to obtain more credit from up til now reticent and wary lenders and credit grantors. It won't attract SMEs who are struggling, but hopefully, Creditpal will offer a chance to companies bucking the recessionary market trends who want to tell their success stories. The construction trade hasn't had an easy ride for two years, but there are thousands of builders out there, tarred with a bad brush, who are actually doing OK, thank you. Maybe Creditpal will help them and others like them, get the credit they actually deserve.

Going Concern Statements Giving Too Much Concern?

Fri, 02 Oct 2009 09:59:00 +0000

I was talking to senior executives at the ACCA yesterday, and hearing of complaints about the credit industry from accountancy firms on behalf of their disgruntled clients. it appears that the increasing number of going concern statements in audited accounts containing references to "material uncertainties" about future trading aren't going down too well with credit grantors. The argument goes that many credit managers are reading these going concern statements, often talking about the difficult economic backdrop, impact on cash flow etc as and treating them as seriously as Auditors qualifications.

As these going concern statements are becoming commonplace in statutory accounts being filed at companies house as the recession continues, the attitude of credit grantors towards these statements will become even more important: the more negative the approach, the more difficult it will be for companies to claw their way out of recession.

No one , including directors of businesses or accountants, want to attach their names and reputations to incorrect or false statements in audited accounts, but if they tell the straightforward truth i.e. it's bloody tough out there and yes, there are uncertainties about the future which we acknowledge, will the credit industry take the dimmest view of this honesty and penalise companies too harshly?

I'd be interested to hear some accountants' views on this.