Archive for October, 2011

Insolvent pensions

Interesting points raised in linked article. My own view is that it there are pluses from the pre-pack process but it is understandable when there is also a bitter taste left in the mouth of laid off employees and unsecured creditors.

When that extends to pension liabilities then you can understand why many are starting to feel a bit queasy about the whole process.

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Credit ratings. What are they good for?

October 26, 2011 1 comment

Although not an avid user of Twitter, I have noticed that recent pieces in the media regarding variations in the credit limits suggested by various credit agencies have been “tweeted’ relentlessly

This is one article

Is this really such an issue? Does it matter that Experian suggests £8500 for one particular business and Dun and Bradstreet £105,000? Is this a new development with so many agencies now in the market place?

I will start by making a very hard nosed point. The simple fact is that any supplier who simply takes an outside agencies limit and applies without thinking is simply not managing its credit control correctly. If a credit controller or credit manager is operating that way, then frankly they out to redefine their job title to sales ledger clerk

Credit limits are simply suggestions. Firstly a facility of £100k may be rather a lot for a SME to extend but not really that crucial for a blue chip, so you cannot start with the one size fits all model. Secondly agencies (despite some quoted opinions) are allowed their opinions. Different agencies will weight the accounts in different ways.

Creditsafe, Experian and Dun and Bradstreet are the three agencies detailed and they all have differing methods. Creditsafe are the cheapest provider by far but also the one most reliant on the straightforward ratios on filed accounts. Experian and D&B look a little deeper and will often come to varying conclusions. One is particularly negative about directors associated with previously “failed” companies whilst the other is dismissive of intangible assets. With both of these factors, you again have to look a little deeper into the facts behind the figures

And this is the crucial element. A credit report should simply be a guideline from which you make your own decision. This is of little comfort perhaps for businesses that feel they are being unfairly rejected by an overzealous and perhaps lazy credit manager, as the article perhaps rightly suggests

Is this a recent development? Not at all. I recall such variations at least 20 years ago when it could be argued that assessment was somewhat simpler than today

But the key isn’t “regulation” of agencies (how can you insist upon an opinion?). It is the use of credit management in a professional manner. The credit manager or whoever is responsible should be thinking hard about how to make the sale work and what the real risks are

A credit manager’s first objective is to minimise bad debts, but running it a close second is making sure that good credit worthy clients and profitable business is not lazily turned away

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Something to see…

Every now and then i will highlight something in London that has to be seen and as ever the Whitechapel gallery comes up trumps. This is a fine exhibition on an accessible and interesting painter who produces very striking work.

More than a just a fine way to pass time between meetings

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The end for Saab?

I am a Saab driver and had the same car for 13 years. Admittedly cars do not greatly interest me but it is sad to see the likely demise of a fairly unique manufacturer.

Is there a solution? It would appear that the Chinese suitors have not exactly endeared themselves to the owners but having not produced a car for over six months (due to suppliers withdrawing credit) you do wonder whether momentum has all but disappeared

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Help for small businesses ? Maybe not

Another excellent piece in Slate which has resonance for those suggesting that direct government intervention is required to boost small businesses borrowing.

Here is the key quote..

But there is another reason the program faltered—and might never have been able to succeed in the first place. Small businesses need credit to grow, to acquire equipment and hire workers to make sure more and more customers come in. But if small businesses don’t really believe that those customers are going to come in, well, they tend not to want to take on any debt. At some point, the problem isn’t a lack of credit. It’s an economy-wide lack of demand.

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Things you didn’t know about Greece

1. The average public sector employee earns three times the wage of the average private sector employee

2. The public sector wage bill has doubled in real terms over the past twelve years

3. An annual eu 600m pension liability was never recorded. It was simply ignored

4. Goldman Sachs took $300m in fees in an “apparently legal but nonetheless repellent deal’ to hide the Greek government’s true level of debt

All from Michael Lewis’s new book Boomerang, a travelogue/analysis of the european debt crisis. You may be familiar with his previous books Liars Poker and the Big Short of course and by all accounts, this has stormed up the best sellers lists in the US

I will certainly be reading it very soon

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The best way to consult with a client? Say nothing…

October 17, 2011 1 comment

I exaggerate of course, but how many of you have encountered “experts” or “consultants” who rampage all over the place barely allowing for a word in edgeways?

A perfect example of this was a conversation I had with a “business consultant” about the increasing trend for large debtors to impose extended terms on their suppliers. To my mind its a tricky situation but he had a solution. “Put your prices up by 10 %!”. I laughed but he indicated he was being serious. “A client of mine did that and they didn’t notice”

Well thats great news and I can imagine him imparting this wonderful piece of wisdom on every client he works for. But is that consulting? Of course not.

The very idea that every business is in a position to “get away with” 10% price increases to their clients is ludicrous (as I was tempted to tell him) and before offering up such a blanket solution, it would perhaps make sense to understand your client’s limitations and requirements.

So when it comes to consulting, it is essential to listen and form a picture first. A slapdash knee jerk solution offered will quickly lose credibility (“yes I am going to slap 10% onto Tescos aren’t I ? you **** )

Whenever I took a new credit management role, I spent a good deal of time absorbing the culture and dynamics of the business. When consulting, I do not have that time but now I do know what questions to ask. It is vital to form an accurate picture. Thus it is essential to listen

Personally I find consulting fascinating. Guiding and training staff is rewarding as is helping a business resolve difficult debts and issues as well as bringing some structure to their risk and collections (the effect of which can be dramatic), but it is essential that confidence is built and maintained

And the greatest reward is the maintaining of that relationship. Far more valuable than a 10% surcharge thats for sure

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