How not to treat a SME. This banker should be fired

A very decent independent lender has just taken on the account of a medium size packaging manufacturer turning over around £24m a year. They are well established and profitable

How did they come to win this excellent piece of business from a major bank? The fact is that they should not have done so. The bank should never have lost the business.

The manufacturer had signed with this bank for a facility of around £4m. It has to be said that on both sides there was an error at this point, which should also have been spotted by the broker (if they used one). The business was very seasonal with a lot of work in the pre christmas period. That led to a requirement in excess of £4m.

Yes, that should have been predicted and i would suggest that the bank should certainly have made a provision for this eventuality not least from previous accounts and simply by just knowing the business. They clearly didn’t.

So faced with this requirement what did the bank do? The debt is straight delivery and to safe blue chip clients. The balance sheet is fine. Business was strong

They passed the client onto a “turnaround” specialist. For those that are not aware of this role, their job is to rescue businesses in difficulties

In addition there has been considerable controversy regarding some recent relationships between such specialists and certain bankers. A high profile court case being an example. Far be it for me to suggest that a similar relationship was in place here but maybe someone should have a look?

The independent financier stepped in quickly and grabbed the businesss. They wouldnt have done so unless it was perfectly viable lending.

So what we had was a banker who suggests a “distressed company specialist” to a business that is booming at its peak season.

Thats akin to a doctor diagnosing a broken leg as cancer

Why do these people remain employed?

The FSB and “late” payments to SMEs

This issue is in the news again and yet again we have a degree of hot air but little in the way of actual solutions. I am once again going to sound defeatist and simply state that there is very little a business can do about this. Having said that there are some points to consider and as with many things in life, preparation is key.

Before we get to that, this is a point worth answering

While the FSB has applauded Government initiatives on transparency – from this month, large companies must declare what percentage of their payments to smaller suppliers are settled within an acceptable 30 days; and what proportion go unpaid for an unacceptable 60 days or more

The first question is why is 60 days “unacceptable” if its agreed between the two parties? Also the FSB must surely know that in certain sectors 60 or even 90 days, are standard terms. As difficult as it is to defend major retail chains, if they agree 90 day terms then thats between them and the supplier, not an external “ombudsman”.

There seems to be little understanding that payment terms are as much part of the contract as the price. In fact they are an element of the price. If a supplier throws his hands up at 90 days payment terms when he has accepted an order then he can only blame him/herself. No amount of appealing to ombudsmen can change that and nor should it.

Business owners have to consider the terms of payment as fundamental to the contract. If the payment terms are extended then the cost of finance should be calculated into the decision of whether the business is worthwhile. In addition to the cost in pure financial costs, owners should also consider the time and effort required to monitor and manage late paying debtors and a tight working capital.

There is also a defeatest attitude to payment terms. Ive seen businesses haggle over price but seemingly accept that extended payment terms are “non negotiable”. That is nonsense.

Simply put, both sides have to find the terms they are happy to work with and then come to an agreement. If the client will not shift then its sell and price accordingly or walk away but dont accept and then complain its “unacceptable”

How the high street is changing

Shopping habits are continually evolving and in many ways the report recently published by PWC could be described as stating the bleeding obvious. High streets are pretty visable and we maybe dont really need highly renumerated accountants to tell us what we can see with our own eyes. However some stats do stand out

in total, 4,534 stores opened in the UK last year and 5,430 closed, leading to a net change of minus 896.

Thats pretty significant by any measure.

Banks and financial institutions recorded 44 openings and 240 closures in 2016, with a net fall of 196. The number of bank closures is likely to rise in 2017 after Lloyds announced last week that it was calling time on another 100 branches.

And surely this is only the beginning of a longer term trend

It will be interesting to see how the high street does develop over the coming years. Certainly I would be wary of funding or lending to start ups in certain sectors but on the other hand I am not convinced that online shopping will continue to climb at the same rate. Shopping is still enough of a social activity for many. Genuine human interaction is the key and I also believe that businesses that offer true service, be it a butchers or bookseller, will prosper.

 

Hotels heading for a crisis?

Whilst researching this short piece, I came across this remarkable piece of sixties innovation. A hotel on top of a multi story car park. Needless to say, it was not a success.

This week Moore Stephens have communicated a pretty dire warning regarding the Hotel sector. There could well be some substance in their claims with the national living wage eating into margins as well as driven competition through price comparison websites. On the other hand the websites have been around for some time now and surely the impact of the cheaper pound must continue to drive tourism?

 

More on late payments

This shows up Labour very poorly indeed. From the BBC

Labour’s late payment figures come from a “random selection” of data from credit reports produced by Experian.
The credit reference agency said it had not had any input into Labour’s report and the figures were taken from a commercially available report aimed at giving small businesses an idea of how late some companies can be with payments.
An Experian spokesman said the figures solely related to invoices settled late and did not take into account payments that had been made on time.
“As such, the data relates to how late a business can expect any late payments to be, and not the company’s overall track record on the payment of suppliers,” the spokesman said.
“For example, if a company settles 1,000 invoices on time but 50 are paid an average of 20 days late, their ‘days beyond terms’ figure would be 20.

Right message. Wrong detail

As has so often been the case with the current Labour party, basic messages have been undermimed by a seeming poor grasp of detail.

No one should really object to Corbyn’s message at the FSB attacking late payments by corporations but the names mentioned had this credit manager scratching his head. BT are not known to be offenders at all and in my limited experience I’ve found that they stick pretty closely to agreed terms. M&S do not have the reputation of other supermarkets and I’ve not known the other firms mentioned to be signalled as a problem for invoice financiers, which is often a reliable indication of payment habits.

However, almost all of the companies named by Corbyn, including M&S, Capita and BT Group, disputed the figures in the speech.

An M&S spokesperson said: “We don’t recognise these numbers at all. Over 99% of our supplier invoices are paid on time and we are signatories to the prompt payment code.”

A BT spokesman said the company spent £9.3bn with UK suppliers last year, 40% of which went to small businesses. “During 2015/16 the average number of days between BT being invoiced and payment to UK suppliers was 54 days, well below the figures claimed in this report, which we do not recognise,” the spokesman said.

Capita said it did not recognise the figures either and said 90% of invoices were paid within 30 days of receipt. A National Grid spokesman said the company was a signatory to the prompt payment code and “consistently pay at least 90% of our invoices on time”.

Vodafone said it paid SME suppliers 45 days on average from the invoice date. “We pay 90% of our invoices on time and, where this is not achieved, the most significant factor is receiving the invoices late from the supplier,” a spokesman said.

Apparently this information was culled from Experian but I believe that if yor are going to name and shame in public then you should check details from more than one source

More increased commissions. Good or bad?

Another lender has moved towards paying higher rates of commission for invoice finance referals. In fact they have matched the leader in this movement by actually doubling the rate.

As I mentioned before, I am not happy about this because it muddies the waters. When presenting our role to clients we have to project our genuine impartiality. How do I convince a client that X lender is the most suitable option regardless of the level of commission paid? In fairness I have found that clients have been very accepting of this and seemed to convey a genuine trust but it still presents an extra task.

Arguably there is another aspect to this which rebounds on the lender. If the lenders product is the very best option for the borrower then surely they should need to inentivise the brokers?

Should they?

 

 

 

SW trains madness

As a very regular user of SW Trains I had very mixed feelings about the loss of the franchise  to First Group. Compared with certain other operators, I find the service and the staff to be first class. Stagecoach will be a hard act to follow and it does make you wonder why the government is prepared to see a risk taken over a franchise that is working. An absense of parliamentary opposition could be one answer but with public opinion against the privitisation of railways, it does appear to be a little negligent to let one well functioning and very siginifcant operator slip by the wayside

What will be even more difficult for the government to explain will be this story. A large number of new trains are effectively going to be dumped with no possible other home (check the technical reason for this) after just three years. This is clearly madness.

The quote from the department of transport could also easily come back to haunt them

“It is for First MTR South Western to decide how it uses its trains.”

Fine but who paid or is paying for this dumped rolling stock? And surely the challenge will be that such a extraordinarily wasteful decision would never have been taken by a nationalised railway.