The FSB respond to Carillion with strong words

Many thanks to the excellent Hounslow chamber of commerce for this link. Strong words but im not at all sure what is meant by “since July 2017”. Since Carillion were sliding down a slippery slope at that time and struggling badly, the effectiveness of a Prompt Payment code would have been less than zero. Furthermore Carillion have been shocking payers for years so the date is irrelevant

It hardly helps the cause of small businesses when their self appointed representives cannot grasp the facts of the matter

FSB is calling on Government to mandate that all FTSE 350 companies sign up to a strengthened Prompt Payment Code with a new “three strikes and you’re out” rule, which specifically targets repeat offenders of late payment. The worst offending companies should be struck off and stripped of the right to be awarded public sector contracts until their practices have improved. Mike Cherry, National Chairman at the Federation of Small Businesses, said:

 “Sadly this sorry saga has laid bare the frailties of the Prompt Payment Code.  While it is fundamentally a good idea, it does not work when it is most needed – as shown with Carillion’s behaviour since July 2017.”

Companies taking advantage of small businesses for their own gains should have no right to public sector contracts. “The Small Business Commissioner needs to be given responsibility to toughen up the Prompt Payment Code.  Parliament is today announcing it will scrutinise these issues in a cross-party way, which we hope helps Government chart a new way forward to tackle poor payments.”

The credit insurers after Carillion

This is an update on the credit insurance sector from my friend Martyn Locke. Subsequent to this we have found the losses were £30m and not as much as many expected but the rest of his comments ring true

Feel free to contact me if you wish to know more

This will be a very big loss to the credit Insurance market in view of the spill out to other subcontractors and suppliers. This will be a classic “domino effect” situation where the pain will be felt throughout the sector and inevitably it will be the SME segment that will be hit the hardest.

I have no numbers from the market yet and would expect something from the ABI (Association of British Insurers) fairly soon. Most of the Credit Insurers scaled down cover on Carillion in the late summer although there will be residual cover but I don’t think anyone can easily guess the knock on effect yet. Undoubtedly Credit insurance rates will increase for the Construction sector and, on the back of the recent failure of Palmer & Harvey with the knock on effects producing over £150+m losses to the market, this could be the catalyst to increase Credit Insurance premium rates across all sectors. Anybody considering whether to insure their debtor book would be well advised to secure cover quickly and also it would be advisable to test existing cover at renewal as it is inevitable that some Insurers will be effected more than others.

More struggling restaurant chains

After the news that Byron and Jamies have entered CVA’s there are now reports that Prezzo is heading in the same direction.

They’re calling it the casual dining crunch. As soaring labour costs, business rates, rent and food inflation take an ever bigger bite out of restaurant takings, so more and more operators are resorting to painful restructurings to ensure they live to serve another meal.

In the past two weeks alone, Byron, the posh burger chain beloved of George Osborne, and Jamie Oliver’s Jamie’s Italian brand have both resorted to company voluntary arrangements — an insolvency process — to keep themselves afloat, and all eyes are now on whether Prezzo, widely tipped as the next restructuring candidate, can make it through the crunch.

The reasons for these struggles could rightly be attributed to the above but personally I would consider other factors. Jamie Oliver was rightly laughed at when he blamed the brexit vote for the closure of a number of his underperforming outlets because the timing was almost simultaneous but it would be fair to say that these chains are more exposed to the vagaries of consumer sentiment than other sectors. On the other hand the initial success has almost certainly led to dangerous over expansion and there are just too many outlets sitting empty for most of the day.  Furthermore in certain cases the quality has slipped as the chains have expanded. Ive certainly experienced poor service at Byron’s lately and wouldnt go near Jamie’s Italian. But good attention to detail and imaginative changing menus still work as many customers of the excellent Wagamama chain would testify.

There simply are not enough customers to go round so competition remains tough and the market will have to readjust. Expect further failures

 

FSA ombudsman for small medium businesses

It has been proposed by the FSA that small businesses with turnovers of up to £6.5m and not more than fifty staff could have access to the Financial Ombudsman where they believe that have been badly missold a financial product or simply received poor service

The details are not clear as yet but this could have quite an impact on the invoice finance and general lending industry.

In many ways i welcome the proposal but i do also believe that businesses should be professional enough to understand the contracts they are entering into or at least seek advice. An unintended consequence of this could be that businesses will sign to poor contracts regardless believing that they can simply rely on appeals

That would be naive of course but the greater pressure will be on lenders to be more transparent.

A few years back this proposal would have had a startling impact on many lenders but the industry has considerably imporved its behaviour. It had to

How many of Carillions creditors were credit insured?

Have a guess?

Clearly those that were not insured are going to incur devastating bad debts and as much as the government has requested that banks “go easy” on subcontractors who are suffering, there are going to be numerous casualties. You would also have assumed that with the constant negative news about Carillion, creditors would have sought protection.

So you may assume that at least half of their creditors were insured? No? Perhaps a quarter then?

No

The credit insurers are due to pay out £30m which represents 3% of their total trade debtors

So why did the government use Carillon?

I am going to take a couple of different angles to the usual press coverage on Carillion, which has probably focused a little too much on the PFI and public sector provision aspect. Arguably thats the area which is going to have the least negative impact

Will be following this up with another piece but the above question relates to the government and small businesses.

For more years than we can care to remember, small businesses have been appealing to each and every admnistration to “do something about” corporations and their shocking contracts and late payment habits. This has become a much greater problem in recent times but the fact of the matter is that without actual direct influence the government of the day could do relatively little

You can see where this is heading

Carillion were notorious even within the horrendous construction sector for dreadful payment terms (minimum 120 days I recall?) and even worse payment habits. The government would surely have been aware of their reputation before awarding the contracts ? If not then thats another perfect example of incompetence but if they did then its pretty safe to conclude that the treatment of suppliers was of no consideration.

Carillion was clearly desperate to win business at all costs and seemingly chased turnover instead of value.

What would it have taken to ensure that part of the contract was that direct suppliers were paid on reasonable terms? And would it have taken that much more to wave a vaguer threat about improving the overall profile of supplier payments

And if Carillion couldnt comply then the government would have had the much needed and clear indication that this business could not adequately fund itself

On the internet nobody knows you are a dog

An old cartoon but every bit as relevant today as before.

 

Credit to Aldi

When seeking invoice finance for my clients, the quality and reliability of their debtors is a significant factor. Many will assume that this is simply based upon the debtors balance sheet but that is far from the truth. In fact the contract and the general treatment of suppliers is of greater consideration.

There are a number of high profile chains that invoice financers rightly dislike. In a couple of cases they will not accept them as a client at all. Aldi would certainly not be one of these. Their contracts are refreshingly clear, fair and concise and their payments timely

This story is no surprise. A business that treats its staff well will also believe in the ethos properly partnering suppliers.

All credit to this excellent business.

 

P & A. Disappointing news

We need high profile successful cases against the so called professionals who deliberately rip off businesses to succeed.

In my view the following has a whiff about it

A lack of available witnesses and “evidential difficulties” — understood to include botched raids of P&A’s offices — contributed to the decision, the government said. Two of the firm’s former insolvency practitioners admitted wrongdoing in a high court civil case last year related to the alleged professional fees scam.

 

 

 

Happy new year and my predictions for 2018

 

 

My Predictions for 2018 As the year ends I tend to give some thoughts to how the asset finance markets will develop over the coming year. I haven’t looked back at my 2017 predictions but I think i wasn’t too far of the mark.

Lets see if 2018 is as expected

1. The effect of Brexit will actually be quite boring in so far as it will have far less difference either way than so many seem to assume. SMEs will increasingly cotton onto this and confidence will return. Not that it really went away to any great extent. Labour not come to power but the risk will continue to spook business. The shadow chancellor  is going to try and reassure and I suspect he is a pragmatist but it has bypassed many how very hostile the leader is to any free enterprise.
2. The large banks have not come under any recent pressure to lend to businesses. This is a consequence of Brexit and energies divested elsewhere. This will continue and there will be a further drift towards the independent market
3. PTP lending will continue to mature. There will be failures and new entrants. In fact many new entrants in the past year have had excellent imaginative models.
4. PTP lenders will become more conventional and realise that lending is more about people than algorithms. This has already become an increasing trend
5. There will be new entrants in the Trade finance sector and there will be a new imaginaitive offering
6. Supply chain finance will continue to grow at the micro level. There is room for new players in this market Have a great 2018