More thoughts on zombies

The issue of zombie companies has been across the financial pages in recent weeks including a high profile column piece from David Wighton in the Times

He has developed the theme suggested by Frances Coulson of R3. R3 suggest that the “zombies” are effectively or close to insolvency because they are only just managing to pay the interest on debt and are thus very vulnerable to an interest rate rise. Thats logical of course

The number of business insolvencies has been far less than expected and unemployment has not rocketed as predicted

Wighton goes on to say that the other side of the equation is that bank lending is restricted by this immovable exposure and is thus starved from new or growing enterprises.

Im going to counter both views a little

First of all, if rates rise it will be because the economy is recovering at a pace and it will be in reaction to the recovery rather than pre-empting it. By the same token, surely many of the businesses flatlining at the present time will benefit from the pick up. That would be a natural result of course

Wighton’s suggestion is a little more tenuous I believe. His premise is that by allowing more failing companies to go to the wall (or nudging them perhaps), the sector would cleanse itself of bad business. He draws parallels with Japan in the nineties whereby the issue of failing banks and businesses was not addressed until the damaging effects slowed down the economy

Maybe so, but can we be so sure that the banks would take risks on the new enterprises geared towards replacing the “zombies”? is the equation as straight line as suggested?Simple as that? Im not so sure. Also worth considering is that the resulting spike in unemployment would not aid the recovery cycle at all.

And are the banks as benign towards struggling businesses as has been suggested? I think it varies from bank to bank and the state backed lenders are supposedly more benign although the shareholders and employees of Peacocks may not agree

EU Late payment directive. Will it work?

Of course not.

We live in a free market (thankfully) and simply put, the relationship between supplier and client in this competitive world is such that well meaning outside influence on the terms of the contract is bound to fail. It is a complete waste of time

To put it bluntly, are you going to start reeling off the terms of this directive to your biggest client when they are a week late with settlement? I don’t think so

But here are the proposals, if you are still curious

The main points outlined in the EU Directive are that:

Public authorities will be required to pay suppliers within 30 calendar days of receipt of an undisputed invoice (this matches the UK Government’s standard practice for the public sector)
For business to business payments, the period for payment fixed in the contract should not exceed 60 days, unless otherwise expressly agreed and provided such terms are not grossly unfair
It copies current UK practice of a default payment period of 30 days, where terms have not been agreed
There is a minimum €40 (approximately £31) for compensation (current UK legislation sets three levels of compensation payment according to the value of the payment). Suppliers will not be prevented from seeking to claim additional recovery costs.

Link is http://www.bis.gov.uk/Consultations/combating-late-payment-in-commercial-transactions?cat=open

Masters of Money

 

http://www.bbc.co.uk/iplayer/episode/b01mxpzv/Masters_of_Money_Keynes/

Just watched the first of these and it was a fine and concise summary of Keynes relating nicely to the current situation

Certainly one to see

Andy Warhol In Dulwich

You have missed it I am afraid, but here are three pieces from the excellent Warhol exhibition at the ever beautiful Dulwich picture gallery

Underpowered India

What has happened with India? After years of strong growth, the economy has stalled and the predictions of a developing economic superpower seem to be falling flat

Why is this?

Perhaps the answer here, but in essence there are two determining factors namely corruption and a basic inability to provide infrastructure power

And this is seemingly illustrated by the seemingly chaotic coal mining sector

Someone needs to get a grip

Debt collection in the USA. A warning

Consumer collections is an area that is of relatively limited interest to me but increasingly the tactics used by some companies must be viewed as being very close to the mark. The simple fact is that there is collections have become a vehicle for blatant profiteering and there are some abuses which should be addressed.

But perhaps matters are not quite so out of control as they are in the USA as this story
illustrates

Heres an example. Comments welcome

The practice, which has spread to more than 300 district attorneys’ offices in recent years, shocked Angela Yartz when she was threatened with conviction over a $47.95 check to Walmart. A single mother in San Mateo, Calif., Ms. Yartz said she learned the check had bounced only when she opened a letter in February, signed by the Alameda County district attorney, informing her that unless she paid $280.05 — including $180 for a “financial accountability” class — she could be jailed for up to one year.

Vince Cables Bank

Passing Twickenham station the other night I almost ran straight into Vince Cable, who was looking a little less than happy after what had been a difficult day. Vince actually lives at the end of my road in a house somewhat less grand than Blair’s pile or Chequers. And he’s a good local MP

But what of his new “bank’ for “small businesses”?

Some sceptical Guardian and Telegraph comment here

The first point that jumped out at me was that sectors would be targeted. these would include Aerospace, cars and life sciences. Small businesses? In these complicated sectors?

As it happens, I am at this very time looking into grants/finance for a new business in aerospace but the fact remains that these sectors have a whiff of the old 60’s “industrial policy’ about them and are a world away from the type of business that might well be struggling in the current climate

It also could send a clear message that service industries need not apply

We will see what happens but I sense that the salient free market instincts of the bulk of the coalition will win out and I will be surprised if we see the bank at all

Yellow pages turn red

In my last fill time role as a credit manager, the group I was working for had considerable worldwide exposure across a number of group companies to Yell (the publishers of yellow pages). At the time there were rumours in the press that they were facing difficulties and having taken a look at the accounts, i could see why.

They had massive debt

Naturally enough my role was to quietly highlight this and I did so. And what happened? A senior account manager threw his toys out of the pram. The worstfdihaveeverworkedfor (lets give him that title) totally failed to back me up. Not good, but things move on

Now they are back in the news again with exactly the same difficulties and perhaps more pronounced now

No credit manager should delight in “i told you so” because companies in trouble is not good news in any circumstances most especially for the employees. We should never forget how stressful that can be

So lets hope that they resolve this. I haven’t looked at the accounts again but having said that, the scenario remains familiar. And thats not least because Yell is facing a lot of competition out there on the net.

When was the last time you used Yellow pages?

My warning then did not come to pass but sadly it may still do so