Manufacturing fetish

Over the past week or so we have heard from politicians from the extremes of left and right, John Mcdonnell and Donald Trump,  waxing lyrical about “manufacturing”. They almost appear to cling to the incoherent belief that manufacturing is somehow far more worthy than other forms of adding value

I am going to post a more thorough piece on this shortly but for now I will quote the first class economist John Kay, who it should be noted, is seemingly centrist in his political belief

Manufacturing fetishism – the idea that manufacturing is the central economic activity and everything else is somehow subordinate – is deeply ingrained in human thinking. The perception that only tangible objects represent real wealth and only physical labour real work was probably formed in the days when economic activity was the constant search for food, fuel and shelter.

A particularly silly expression of manufacturing fetishism can be heard from the many business people who equate wealth creation with private sector production. They applaud the activities of making the pills you pop and processing the popcorn you eat in the interval. The doctors who prescribe the pills, the scientists who establish that the pills work, the actors who draw you to the performance and the writers whose works they bring to life; these are all somehow parasitic on the pill grinders and corn poppers.

When you look at the value chain of manufactured goods we consume today, you quickly appreciate how small a proportion of the value of output is represented by the processes of manufacturing and assembly. Most of what you pay reflects the style of the suit, the design of the iPhone, the precision of the assembly of the aircraft engine, the painstaking pharmaceutical research, the quality assurance that tells you products really are what they claim to be.

Trouble for lenders?

The recent collapse of peer to peer lender Funding Knight might have served as a wake up call for that segment of the market but what may be deemed the traditional end of invoice finance suffered a small casualty last week

First Capital Factors were not a big player. They were quite regional being concentrated in south and west of England and I will admit they never won one of my clients despite having opportunities to pitch.

Nothing wrong with that but perhaps indicative of not having anything distinctive to offer the market. They were very pleasant to meet but a little ‘old school’ ,

And that is the problem. The market is more diverse than ever and many of the past working practices of invoice financiers are looking dated and even a little ridiculous

Just this week I have become aware of three new entrants into the market with widely differing products. Debatable whether they will all succeed or find the right niche but its healthy for borrowers as well as additional responsibility for brokers. Which they should welcome. I do

I would hesitate to say that businesses have “never had it so good” but with the right guidance there is a lot of opportunity out there

Naturally I wish their employees well and perhaps it is of little comfort for them to know that regeneration is good for the market.

But of course, it should also be remembered that small lenders do not have governments to bail them out.

How not to run a credit control team

I recently consulted with a rapidly growing business that was experiencing difficulties with their debtors. Clearly for reasons of confidentiality I cannot disclose who the client was but below is my summary of their issues.

The key here is that whilst this was a pretty extreme case, the problems are familiar and largely revolve around staff management and motivation. Another difficulty is that certain finance people cannot understand that credit control is not exclusively a “process” role.

1. The team lacked focus. I set targets and this brought about some motivation but credit controllers need to take ownership of their ledger.

2. The targets should be two fold. Day to day collection total targeted on a monthly basis and a target for reducing the old debt. Under no circumstances whatsoever should targets be based around “calls made” . Making a call is very different to getting a result and if one call takes all morning to release a large old debt then so be it

3. Credit controllers need some lassitude to take responsibility. Unlike many in accounts the best credit controllers are self motivated and should not require anything more than guidance. With targets to hand they know what is required

4. The process for chasing is muddled. Accounts under £1k should be purely chased by letter unless there is a dispute

5. Supposedly difficult accounts should not be handled by anyone other than the credit controllers unless there is a negotiation in place. I could not understand why others such as the financial controller were getting involved. It’s extremely demotivating for a credit controller with the clear message that they cannot be trusted

6. Some of the management team consistently referred to disputed accounts as “your problem” . I have not encountered this attitude before and it’s completely dysfunctional. This has to change. There are better methods to handle the disputes than weekly meetings and I had something effective in mind

7. You need skilled credit controllers with a strong attitude. Not temporary staff who are simply “chasing debt”. They should be looking at the role as a career and be looking at debtors as an asset of the business that carries some risk and needs careful management. They need encouragement and training.

8. The letters badly needed rewriting. Frankly they were not even literate. I was in the process of doing so. There needs to be a set routine for management of the letters

9. Seriously overdue debtors should receive a solicitors letter. Online claim forms are fine but can cost and can drag out the collections. They should be a last resort given that they take up time and resources. I negotiated a good package with a top firm of lawyers. It would be cheap and effective

10. There needs to be consistent reporting of debtors days and aged totals.

11. Credit assessment is essential. Bad debts are expensive and most are avoided by skilled credit rating

12. There is a tendency to apportion blame rather than genuine teamwork. I have always found that any credit controller under my charge who was willing to work would be guided towards motivation and strong results. That is not a boast but the key is that their failings were my failings. I took always took that responsibility

Who wants to lend?

In the past few weeks three clients have asked me to source fairly good sized loans to help expand their businesses. Nothing unusual in that but once again the market was instructive.

The prospects were particularly strong and had excellent credit ratings. Also the lending was going towards a defined purpose and the security was strong. Add all this up and you would think that the lenders would be crawling over each other to fund. Not so

The problem was not that the appetite was missing but the whole procedure and responsiveness and this is where the established banks are going to continue to lose out. The contrast between the requirements of the new fintechs and the big four are vast. That could be countered by the claim that the old school lenders were being diligent but again that is on a fraction of the story

Business owners are busy people. They also tend not to appreciate excessive intrusiveness and reams of paperwork. In one case the bank were asking questions which were quite extraordinarily personal and which my client rightly refused to answer.

My clients (and myself) also expect their calls to be returned

Loans through fintechs frequently cost more but the gap is closing quickly. They pride themselves on keeping the applications slick and to the point and even more importantly they are driven by competition to act in an extremely timely manner

Two of my prospects have had banks sitting on applications for over two months now. My other prospect sourced through a finch and had the loan within a week

 

 

Dyson and the EU. Vacuuming up the facts?

There has been a lot of hot air regarding the trading situation for the UK post Brexit. Most of this has surrounded potential tariffs and the sheer ability to trade with the 27 states. Most of this has also originated from those that have virtually no knowledge of the actual commercial world let alone that of buildings  business

There has been a fairly consistent undercurrent in certain supposedly educated quarters that brexit was motivated by “ignorance”. Even for those of us who were very marginal on the vote, this comes across ignorant in itself. On various internet forums I even have seen supposedly self proclaimed knowledgable “remainers” claim that leaving the EU would result in a trade embargo. Stupid

This is total nonsense. But perhaps its not down to me to convince readers of this blog. Instead I will point you in the direction of James Dyson who’s interview with  the BBC is a clearheaded and astute as you could possibly ask for

And no one would accuse him of not understanding markets and export would they?

Paul Mason? Call yourself an economist?

Having read  this article I dont think so

Mason is regarded by some as the leading economist on the left although I will say that I have found little of interest to grasp. Like to many from that political wing (the awful Will Hutton springs to mind), there is a lot of ranting but little convincing clear headed thinking. The British left desperately needs a Paul Krugman

The title of this piece is.

How to blag a job in finance: buy some black shoes and talk like an aristocrat

I have many reservations about many aspects of the lending industry but this is dreadful bigoted nonsense. Sure he may be playing to the gallery but the fact is that it is a total lie as illustrated and dissected by the many comments that follow

As a broker I am working constantly with bankers in asset finance and the picture he paints is complete rubbish

The question is of course that how can you take anything this “economist” says seriously when he is riddled with such clueless prejudice

 

 

Identify these cities

The first is harder than the second and if you really get stuck the answers are here along with many superb aerial photographs

 

 

Seedy insolvency

The tale of P&A insolvency practitioners has been doing the rounds for a year or so now. The firm failed with huge debts but has also been accused of fraud. It is extraordinary that the people accused are being employed as “consultants” by another major firm

The story has blown up again today in the Times given that HMRC are now looking at taking action. Personally I believe that if the guilt is as suggested then the protagonists should be absolutely hammered

I am also aware that P&A had some disgusting and seedy arrangements with certain invoice financiers in the north of England and again I would like to see some public naming and shaming

The IP sector should be eradicating scum not hiring them as “consultants”. Often its a sector that appears to have no sense of any self respect or worth whatsoever

Heres the outline

Millionaire Jeremy Priestley allegedly billed clients when he was out shooting

One of Britain’s leading insolvency experts has been accused of making up billable hours in order to cheat creditors out of millions of pounds.

A criminal investigation is under way after thousands of documents were passed to the government, which allegedly reveal that P&A Partnership, an insolvency firm run by Jeremy Priestley, conducted a fraud by falsifying its time records in order to claim higher fees.
P&A, which was acquired by the AIM-quoted Begbies Traynor last year, was reported to the police, business department and professional bodies after allegations that the business was engaging in so-called “time-dumping”, a court document related to a separate, civil case reveals.

Time-dumping involves falsely claiming work done on insolvency cases — profiting from insolvent estates at the expense of business owners and creditors, including the taxpayer.
The business department is leading a criminal investigation into the claims.

A November judgment in civil proceedings, in which two former employees of P&A were accused of wrongfully charging excessive fees, reported the government’s preliminary findings. According to the judgment, the government said there was “evidence to show” that Mr Priestley and six other P&A staff had been “claiming money from [companies] in administration or liquidation they have not been entitled to”.

Business department investigators alleged that Mr Priestley, the former managing partner of P&A, “charged time to cases when he was unavailable to do so”, the same judgment reported.

Mr Priestley, who is not a qualified insolvency practitioner having failed his professional exams, is alleged to have charged time against insolvent companies when his diary showed him to be on holiday and even “out on a shooting day”. P&A’s senior staff charged as much as £600 an hour.

Mr Priestley remains employed by Begbies Traynor as a senior consultant. The company’s website boasts that it benefits from his more than “25 years’ experience advising corporate and individual clients in financial distress”.

A spokesman for Begbies said that the company was “very happy with the staff taken on” through its acquisition of P&A “and that the cases taken on are being undertaken under Begbies’ own compliance policies and procedures”. It is not under investigation or party to the civil proceedings.

Mr Priestley said that he was “not aware of any proceedings having been commenced [by the business department]” against him. Mr Priestley is not a party to the civil proceedings.

The civil legal action was brought by liquidators from Grant Thornton on behalf of the government’s Pension Protection Fund.
The liquidators have accused two former P&A employees, Christopher White and Andrew Wood, of fraud and “misfeasance or breach of fiduciary duty” in relation to the administration and liquidation of FW Mason & Sons, a Nottingham-based timber business.
An application from Mr White and Mr Wood for the fraud and misfeasance claims in the civil case to be struck out was rejected in November.

Mr Wood, Mr White and Mr Priestley said the allegations were “groundless”. “These proceedings and allegations will continue to be resisted in the most strenuous terms,” Mr Wood said.
Mr Wood said that work on FW Mason secured recoveries of £6.7 million, full payment to preferential creditors and saved “85 out of 102 jobs”.

Unsecured creditors, including the taxman and the employees’ pension fund, lost more than £27 million.
P&A charged £1.2 million for the FW Mason work, which the liquidators said in court was “extremely high”. There are question marks against £800,000-worth of the fees, with as much as three quarters of the billable hours recorded allegedly “not supported by any narrative at all”.

The liquidators said Mr Priestley had recorded 800 hours against the business, charging £236,000. There were 68 weeks in which Mr Priestley charged time where there were “hardly any documents evidencing his [genuine] involvement,” they claimed. They also alleged that P&A had paid a bribe to accountants in order to win the work in the first place.
Ms Registrar Derrett said that the claims against Mr White and Mr Wood were “reasonably meritorious” and had “at least real prospects of success”.

She said it was “notable that the one thing [Mr White and Mr Wood] have not done is to take this opportunity to demonstrate that the remuneration . . . was properly referable to work actually done by P&A.”

The FW Mason case, which was not acquired by Begbies, is one of scores of P&A insolvency jobs spread over several years subject to the criminal investigation, The Times understands. Several million pounds’ worth of fees are being questioned.

The P&A Partnership was raided twice by police and business department officials in 2014 amid concerns about the company’s fees.
The firm was best known for its often contentious insolvency work on football clubs, including Crystal Palace and Plymouth Argyle, although there is no suggestion these jobs form part of the criminal investigation.

Its work has helped to fund a multimillionaire lifestyle for Mr Priestley, including supercars, regular luxury holidays and travelling by private jet.

 

 

Bad debts. Who is to blame?

Its not often that I come across a posting where I find myself agreeing with not just every word but also nodding along with some very pertinent insights. The insights that only come from genuine experience and not from a manual or pure theorising

Jim Sleith of JMS Credit consultancy is based in Scotland so although we cover the same areas of expertise we are thankfully not on each others patch. I am therefore happy to reproduce his excellent recent posting to Linkedin on where the blame lies for bad debts.

Having spent many years in Credit Management I have seen some horrific sales ledgers and bad debt levels, but who is to blame?

Is it the Sales Team who would sell their Granny if they could get a commission for the “sale”?

Is it the Credit Control Team for not collecting the debts?

OR

Is it the Financial Directors/Managing Directors ?

How can you possibly blame the Financial Directors/Managing Directors some may ask?

Well it all comes down to investment and support in business processes, software, and supporting the Credit Control Team.

So many ledgers are full of overdue debt and it is not the fault of the Credit Control Team.

If you don’t invest time and make an effort to strip it all back and address the issues at the outset, then of course the same issues will arise time and time again.

So what needs to be done?

The Financial Directors/Managing Directors must acknowledge that they need good quality staff in the Credit Control Team.
Don’t just approach any old Recruitment Agency and ask them to source “Someone to chase debts”
Approach an agency with an understanding of Credit Control and recruit good quality all round Credit Control staff.
Having recruited said quality staff the Financial Directors/Managing Directors MUST allow them to use their experience and knowledge to truly control credit not just chase debt.
Having identified the issues preventing collection (be those issues with on boarding and/or identification of customers, continual customer disputes etc) a process needs to be put in place to resolve and prevent issues recurring.
In doing so, it is imperative that a good credit control policy is put in place which outlines not only how to deal with new credit requests, but who has authority to grant or refuse credit and to what value.
A good policy will outline documents/information required before granting credit. It is important that the policy is supported by strong terms and conditions of business/sale.
It is vital that having granted credit that the customer is advised of their credit limit.
It is also a important for the Sales Person/Account Manager to highlight company policy on late/non payment and the rights to charge interest, late payment compensation and legal/collection costs. Doing so at the outset ensures no surprises for the customer in the event they delay in paying.
The policy will further outline the collections process from sending invoices (yes, sending an invoice is a request for payment) and at what point account managers will be asked to get involved.
It will also outline how long it should take to update customer accounts with payments and how to deal with unidentified payments.
It will state who has authority to refer accounts to solicitors or collection agencies and at what stage (be it after 3 reminders, a couple of phone calls etc) the accounts are escalated for further action.
Having created the credit policy it then needs buy in from sales/account management teams. To get that buy in it is important to put the policy forward in presentation format and allow Sales/Account Managers to have input.
Having taken account the input of Sales/Account Managers and made any amendments, it is important to put the policy in to practice without delay.
The Financial Director/ Managing Director needs to ensure that the message is delivered loud and clear that this is company policy. Failure to adhere to the policy will be looked upon and dealt with in the same manner, as breach of any other company policy.
So having highlighted what I consider best practice, how do you lay the blame for bad debts/old debts on the Financial Director/Managing Director?

In my experience –

There is no desire to put a policy in place.
Companies review debt levels as they approach year end and panic!
They then approach those non specialist recruitment agencies and ask for a ” Phone Basher” to collect debts. More often than not they don’t have a proper job specification or the credit control role is not defined.
In order to minimise the risk of late payment and bad debts, proper consideration needs to be given to the credit control function.

The credit control function needs the tools and support to do the job properly.

Speculate to accumulate, investment will yield results, cause less headaches, and a proper credit control and collections policy will cause less friction between all the relevant stakeholders.

It is unfortunate that so many company Financial Directors/Managing Directors can’t see the importance of a properly resourced Credit Control Department supported by strong policy.

We can but hope that the more focused Financial Directors/Managing Directors become on cash in the bank that things will change for the better.

LikeLate payments & Bad debt – Blame the sales department?