Labour shortage. Who’s fault?

This subject risks getting political of course but its an issue which is of enormous importance to businesses. To my mind there are a range of factors and there is little doubt that the restrictions on labour movement are proving to be too stringent (as detailed succinctly by the head of Next). I thought that when we “took back control” of our borders, we were granting ourselves the right to admit trades that were urgently required. Its clear that that isn’t happening and I will get temporarily political here and suggest that the fault of a leader who’s so often too slow to respond and a hapless Home Secretary only interested in stimulating her base support

But there is another factor which was highlighted in the Times yesterday. The Civil service has been working at 15% of office capacity and simply put, problems are not being addressed and this comes back to a bugbear of mine.

There is a mini crisis here and such issues are simply not adequately resolved by soporific zoom calls, especially, you sense, in an environment such as the Civil Service. Politicians are of course ultimately responsible but they do rely on CS advice

I visited a major client of mine last week. A manufacturer of aerospace components in the north west and what a pleasure its was too. A dynamic efficient well run business that has been present on site right through the pandemic. Their major client has taken the opposite approach with procurers and buyers “working from hime”. The result, inertia and slowly developing chaos.

Just as we are seeing right across the economy right now

Auditors escape again

Grant Thornton have been fined for their handling of the Pattiserie Valerie audits and there have been a range of other penalties including a three year ban for the head of this particular audit

I have commented on this on a number of previous occasions and whilst in. all these instances its easy to reach for knee jerk “string em up” reaction, surely the benchmark has to be other professions?

There were only two explanations for the gross mismanagement of the PV audit. One is incompetence and the other is one I cannot state because of the libel laws. It has to be remembered that the “mistakes” made were not just slips or minor oversights but glaring, huge and fundamental to the survival of the business

So whats the result of similar dysfunction by a practising Doctor say?

We know the answer and without question, the same should apply here.

And how many more times are we going to see Grant Thornton’s name associated with this malpractice?

Equipment finance. A guide and summary

Equipment finance is a specialist area of asset since where I’ve become increasingly active in recent years. It falls quite a distance behind invoice finance in terms of activity and flexibility but is a useful source which can sometimes be obtained at pretty decent rates.

The range of lenders isn’t as extensive as in invoice finance but it remains competitive and i’ve been impressed with the responsiveness, rates and service from some of the significant independents for whom this is their sole form of lending

The big banks will lend but the tendency is towards straightforward arrangements of substantial size and more often than not, mixed in with an overall asset lend. Of the larger banking independents, two stand out as stand alone equipment lenders and one of these tends towards simple vehicle contracts but the other player is excellent in their range and service. It also helps if the lender has specialists who deal exclusively with the subsections of this sector. Other independents tend to talk up their offerings without really delivering.

So what can and cant be financed? This isn’t always easily answered and i’ve had a situation where two seemingly identical pieces of machinery (for stitching car seats in the manufacturing process) could and couldn’t be financed. One brand was fine, the other wasn’t

Thats a little unusual but as a rule of thumb, the heavier the kit, the easier to finance. Also significant is the lifespan of the equipment. Lenders always look to assess by possible resale value so you can assume that heavy duty foundry equipment is a positive whereas fast depreciating IT equipment is not. Also standard vehicles are not too attractive but heavy duty diggers and excavators are. There are many nuances of course

Certain sectors are more attractive than others. Catering is difficult for instance because even long lasting pieces of equipment do not have an appeal in the “second hand” market. Scaffolding is also unappealing to lenders for a variety of reasons which I will address as a case example in a separate piece here

The market is fairly uniform in appetite but as ever, using a knowledgeable broker is essential and im always here to address any enquiries

Why “work from home” damages business lending

Flat vector illustration of person at desk using computer for video call

Unfortunately behind a firewall, this excellent article addresses the difficulties hedge funds and investors have experienced assessing risk purely through video calling.

Here are a couple of salient points

The icing on the cake for him is securing meetings with the key players involved in a deal “and really looking them in the face and seeing their own levels of convictions in a situation”. Yet such meetings often have been impossible during the past 18 months because of coronavirus lockdowns and the widespread switch to working from home. As a result, he said, the appetite for risk had suffered.

This is entirely logical and yet completely undervalued. It’s always amazed me that certain lenders take the view that all that matters is the numbers and algorithms.

Naturally in any form of lending, doubts lead to reduced appetite for risk and thus we have this situation

Last week TP Icap, the world’s biggest interdealer broker, said that markets had been “uncommonly quiet” during the first half of the year, in part because of lower risk tolerance among its clients while staff have worked from home.

This applies to all forms of lending to different degrees and as an example, given that invoice financing is dependent on long term on going relationships, it is more crucial in that sector than elsewhere.

I have had instances during the past eighteen months where potentially decent relationships never really took off simply because the chemistry was never given a chance to develop. Thankfully we are past that post now but there is a still a sluggishness to engage face to face in some instances.

Thats at the micro level but if appetite for risk remains negative across the whole market, then the knock on effect will naturally be across the whole economy.

Risk manager finds a new role Bad risk? Rubbish credit decisions? It wasn’t me guv

I might be making myself unpopular with this new supply chain finance provider in the market and not least with their new risk manager who, in fairness, left the business back in May 2020, but it was somewhat difficult not to laugh at the excuses given for the failure of risk at Greensil

Yes “interference” is alluded to but with a straight face, the “technology” is blamed

What utter rubbish. If you are over relying on “technology” to make your credit decisions then you are not doing your Job correctly, most especially if those decisions collapse the business. And if you are using the “technology” to come to the wrong conclusions then you only have yourself to blame

Bad broker experiences. How to deal with them

I have a budget for bad experiences. Once a year there is invariably one instance where you are badly let down by a client, referee or sometimes a lender

Last week was such an instance and a pretty unpleasant one too. Every now and then a client will use your knowledge in an underhand way. I will refrain from disclosing the details here but maybe you would expect better from an accountancy firm.

Passing a decent lead onto a long established contact only for them to abuse the situation is perhaps even worse and my god I have a story to tell there. However with lenders, issues are rarely malicious and can be down to a incompetence or “overselling”.

I believe that what goes round comes around. The accountancy firm is now with a lender where I am certain they will have a difficult relationship and having burnt their bridges with other potential partners (its a limited field and its a small industry…) they are likely to find themselves dictated to in a particularly ruthless and aggressive way

Also invoice financing is very relationship based. Unlike mortgages or straightforward lending, it’s a constantly developing and moving scenario. Perhaps uniquely within finance, relationships are deemed to be vital and are assessed strongly before commitments are made. A good balance sheet doesn’t always compensate for a untrustworthy and unpleasant client

All this is frustrating but has to be seen in context. One bad experience does not outweigh the numerous positive experiences. The vast majority of clients are a delight to deal with. Referees are grateful rather than greedy and lenders are generally very professional

And I still enjoy every moment immensely