The tide may be turning to improve workers’ rights

demonstration for workers' rightsIn December Christina Blacklaws, the president of the Law Society, warned in a letter to the Financial Times that employment law on workers’ rights had not kept pace with the changes in the way people work nowadays.

Her concerns were primarily for people working in the so-called ‘gig’ economy after the High Court ruled that Deliveroo riders had no right to bargain collectively.

Her letter said: “Case after case highlights concerns about how the workplace rights of employees, workers and contractors are affected by a law not fit for purpose and not easily understood. The lack of certainty means people are having to go to court to clarify their rights.”

Perhaps in some areas the situation is being clarified by case law such as the recent Supreme Court ruling re Pimlico Plumbers that a sub-contractor cannot be classed as an independent self-employed contractor for employment law purposes and should be treated as a “worker” who is entitled to holiday pay and other basic workers’ rights. This was similar to the Appeal Court ruling re Uber that its drivers should be classed as workers with access to the minimum wage and paid holidays.

The Government has published its proposals for employment law reform, which included giving workers the right to request more predictable hours, as well as offering enhanced protections for agency workers and heavier fines for malicious employers.

Not surprisingly, the more predictable hours proposal was dismissed by TUC leader Frances O’Grady as likely to give workers on zero hours contracts “no more leverage than Oliver Twist”.

No doubt, SME owners will say that the burdens placed on them by the living wage, work-place pension legislation and existing rules governing how they can and cannot treat employees are already onerous enough.

However, given the uncertainty surrounding a post-Brexit future and the fact that much of existing law protecting UK workers is EU law, it is understandable that employees are concerned about their future position.

In an effort to alleviate their concerns, the Government earlier this month issued guarantees on workers’ rights after Brexit, although this was quickly dismissed by an EU and employment law barrister as “meaningless” because there was no guarantee that a future UK Government would enact any future EU legislation protecting workers.

Certainly, the Labour party is offering the prospect of improved workers’ rights and a significant improvement in the power of Unions with a view to reversing the demise of the Unions and the lack of collective bargaining.

Independent of new legislation, the current low level of unemployment and large number of job vacancies would suggest that workers may regain some of their lost power and rights through their right to provide or withdraw their labour and more pertinently their confidence that they can offer it to another employer.

Given that many UK business sectors are already struggling with a skills shortage, particularly in engineering, construction and IT, and that any business that wishes to thrive and grow relies very heavily on its employees feeling valued and engaged with their employer’s future progress, this would seem to be one time when it is in the interests of both to ensure that workers’ legal protection is robust and secure.

March sector focus on UK food production, imports and exports

UK food export and importTea, the UK’s favourite beverage, could become a luxury if analysis by HSBC of a no-deal Brexit is to be believed.

The analysis, published by Business Insider in January, puts the amount of food imported into the UK at 80% if ingredients for processing products are included. Tea, for example, may be processed in the UK but is not grown here.

The prospect of no easily-available cuppas should really concentrate the mind!

Joking aside, an examination of UK food imports and exports indicates just how closely-integrated the food and food processing supply chain really is, and how much relies on the EU.

An analysis of the food industry must cover trade in both ingredients and processed foods. It is complicated by the fact that some ingredients, such as beef, pork and lamb, are often produced in UK but exported for processing and then re-imported as finished products such as cuts of meat ready-packaged for sale or as ingredients in ready-meals. This is the result of us in UK having so few processing facilities.

A further complication for UK food producers/farmers is the shortage of labour, from overseas workers for picking and packing to HGV (Heavy Goods Vehicles) drivers for transport.

This all suggests the likelihood that the cost of food imported into the UK is likely to rise sharply.

What food and drink does the UK export and to where?

According to the most recent statistics from the FDF (Food and Drink Federation) the top ten UK exports by value, in order, for 2018 were:

  1. Whisky
  2. Chocolate
  3. Cheese
  4. Salmon
  5. Wine
  6. Gin
  7. Beef
  8. Beer
  9. Breakfast cereals
  10. Soft drinks

At the moment it calculates that some 75% of this trade is to countries within the EU and as such may mean that new trade agreements, tariffs and so on may have to be developed with both EU and non-EU countries. Some UK food products have EU Protected Food Name status.

Non-EU target markets are likely to include New Zealand, Canada and/or the USA, China and other Asian countries but again all will need trade agreements to be put in place.

ADAS, the UK’s largest independent provider of agricultural and environmental consultancy, rural development services and policy advice, has analysed some of the potential opportunities for the UK to pursue in developing food exporting outside the EU.

For beef and veal, it suggests China, rest of Asia and Africa for offal and the USA for premium cuts but lists among the UK’s weaknesses its limited market access, uncompetitive pricing and the lack of processing facilities.

It is a similar story with sheep products, with the additional factor of already-established competition from Australia and New Zealand. Pork exports could be targeted at South Korea, Vietnam, China and the rest of S Asia but this will take time to put in place.

For dairy products ADAS sees opportunities in countries where there is a growing and affluent middle class, such as China, the Middle East and North Africa.

The UK already has an established global trade for its cereals and oilseeds with Algeria, Tunisia and Japan and here, too there may be potential for further market development.

The AHDB, (Agriculture and Horticulture Development Board, Stoneleigh, Warwickshire), too, sees potential for expanding UK food exporting particularly in dairy products.

Its analysis says: “The main trade-related opportunities of Brexit for the UK dairy industry will focus on displacing imports or growing new export markets. If the UK manages to negotiate a trade deal with the EU allowing tariff-free access, then the likelihood is for business as usual with the EU.

“However, if not, any import tariffs imposed by the UK could provide an opportunity to substitute a number of imports with British milk. Experience from the EU suggests that tariffs may limit the scale of imports of commodity-type products, although speciality products will probably still reach the UK.

“Combined with increased supply chain investment, this could see the UK progress as an industry.”

While opportunities for export are identified in all the analyses, they are contingent on the ability to negotiate Free Trade or Low Tariff agreements with potential customers as well as fending off already-existing arrangements that have been established by the EU.

The other glaring UK deficiency is in the scarcity of in-country facilities for processing foods for export.

It also remains to be seen how UK farmers and growers will be affected by the loss of various agricultural subsidies that have protected EU farmers for many years.

Are we nearing a Minsky moment foretelling the next economic crash?

Minsky moment fuse litHyman Minsky died in relative obscurity in 1996 but economists have adopted his name as a description of particular moments in an economy when asset prices collapse after months of seeming stability.

The 2008 Global financial crash is now seen by economists such as Nobel Prize-winning economist Paul Krugman, as well as former central bankers Janet Yellan in the US and Mervyn King in the UK, as a Minsky Moment.

What is a Minsky moment?

In the 1970s Minsky outlined his economic theory, known as Stability is Destabilising, in stark contrast to the macro-economic theory that argues that the modern market economy is fundamentally stable.

In Minsky’s analysis banks, firms and other economic agents become complacent during periods of economic stability. As a result, they take greater risks in pursuit of profits.

A Minsky moment is a sudden, major collapse of asset values which generates a credit cycle or business cycle. The result is rapid instability as a consequence of long periods of steady prosperity and investment gains that built up risk through ever more leverage instead of improving the balance sheet.

Essentially it is an assumption of never ending growth funded by debt.

Arguably, this is exactly what happened in the run-up to the 2008 crash as banks and other lenders issued complex instruments such as Credit Default Swaps to conceal leverage and risky lending. The crisis crystallises when either interest rates rise or when replacement finance is so expensive that borrowers are unable to pay interest on their debts, never mind the debt itself or even some of the principal.

The Minsky Cycle

A Minsky cycle is a repetitive chain of Minsky moments, when a period of stability encourages risk taking, which leads to a period of instability when risks are realized as losses. The result is that participants move to risk-averse trading (aka de-leveraging), to restore stability, which eventually leads to complacency and so on so the whole cycle repeats.

So, is there a risk of an imminent Minsky moment?

Some investors have been warning of the likelihood of an imminent Minsky moment for the last couple of years.

Asset prices have been relatively high, stock markets have been buoyant and, crucially, central banks have kept interest rates artificially low for much longer than was anticipated after 2008 in order to prop up their economies and allow time for stability and growth.

It is worth noting that the US Federal Reserve late last year started to increase interest rates slightly and we should watch carefully what happens in other central banks.

The IMF, too, has been warning of the risks or another financial crisis as the global market has been slowing markedly.

While Minsky tended to concentrate his analysis on the economy of an individual state, another now-deceased contemporary of his, Susan Strange, who taught at the London School of Economics, supported his thinking but had a broader, global political perspective.

She argued that individual economies should not be seen in isolation but in fact are woven together across the world.  This introduces the idea of contagion, where financial crises flow across borders. She also introduced the influences of a rise in populism and growing inequalities between rich and poor into the analysis.

Arguably, this is a more accurate analysis of the consequences of the Minsky Moment that began in 2008.

All this looks uncomfortably like what seems to be happening in economies now, but it is hard to say for certain yet whether a Minsky Moment is imminent. We only ever find out after the event.

March Key Indicator – Investment in the UK

investment on solid foundationsInvestment is a tricky term to unravel largely because the investment objectives are key to any decision and predicting the future is so difficult, especially given that past performance is rarely a predictor of future returns. Despite the lack of certainty, much analysis is necessary.

Much has been made recently in the UK’s uncertain economic climate about the massive reduction in investment being made by UK businesses in their companies.

It is argued that with the future so uncertain, businesses are holding onto their cash reserves and delaying plans for growth and indeed towards the end of last year the BCC (British Chambers of Commerce) was warning that British businesses had paused investment in growth. However, this is also an excuse used by weak leaders and those who lack a vision.

But investing in the future and growth of your own business is only one level of investment.

At a higher level, investors can be pension funds, investment “vehicles” or funds run by investment companies, and Foreign Direct Investment (FDI) by businesses from one country into those in another.

A rise in investments in the stocks and shares of businesses in an economy is generally regarded as a positive thing.

So, at the moment, UK equities seem to be doing well in that Bloomberg, for example, has just reported that the UK’s top ten investors, in which it includes Invesco, Schroders, Aberdeen Standard and Legal & General, have increased their holdings of UK-listed shares by more than a third over the last three years. This is interpreted as showing a degree of confidence in the UK’s long-term future.

In January CityAM interviewed Shroders’ CEO Peter Harrison reporting that he expected 2019 to be a better year for investors.

Similarly, ONS (Office for National Statistics) data shows that overseas investment into the UK is at its highest level ever, with investment from India, the US and from Japan leading the field.

Sectors currently seen as attractive by equity investors are the financial services and, for both Angel and Venture Capital investment, the UK tech sector, particularly for those businesses developing innovative software, and in Fintech (financial technology).

The key to understanding investors and their behaviour, however, is to examine their expectations.

Much has been made of the short-termism of many investors and shareholders and its negative impact on businesses. In this scenario, investor pressure is for maximum profits or returns on their money over a short period. This pressure can change the behaviour of boards of directors and even influence the remuneration packages of CEOs so that those who deliver maximum profits in the shorter term are well rewarded.  It is questionable, however, whether this is in the longer-term interests of a business.

Generally speaking this type of expectation is most likely to come from pension fund-type investors, where fund managers themselves are under pressure to maximise profits for their members.

Arguably the most successful and reliable investment funds, however, are those that take a longer-term view and focus on the lifetime value and potential of a business.

Warren Buffet’s Berkshire Hathaway vehicle and Terry Smith Fundsmith fund are the top performers using this type of investment model.

Buffet’s “value investing” style focuses on business, management, financial measures, and value and the emphasis is on the long term. He is less interested in the market or the economy or investor sentiment, focusing instead on consistent operating history and favourable long-term prospects.

Terry Smith uses a similar approach as described in a Guardian article last year. Since its founding in 2010 it has made a gain of 309%. His fund has a low turnover of shares and his message is simple: “Buy good companies. Don’t overpay. Do nothing.”

Smith says he avoids certain sectors like insurance companies, real estate, chemicals, heavy industry, construction, utilities, resource extraction and airlines. He recently launched a new fund, called Smithson, focusing on in mid-size companies. Like Buffet’s, Smith’s focus is on the longer-term value in businesses and this is where he chooses to put his money and those of the investors who are members of his fund.

Clearly if a business can attract the interest of either Buffet or Smith in investing it can have some confidence in its stability and its future. Strangely their strategies are similar to those of well run private businesses, although this is perhaps less surprising given that their money is in their funds.

Monthly global outlook – the Bears are gathering for a global economic slowdown but will it be a crash?

Global economic slowdown - or tsunami?While the “B” word is the focus of attention in UK and cited as the cause of low productivity and a UK economic slowdown, there is a growing body of evidence outside UK that is indicating a global economic slowdown although few are yet predicting a crash.

According to the Independent’s economics writer Hamish McRae: “The European economy has pretty much ground to a halt – and this has very little to do with Brexit. If, however, the Brexit negotiations go badly, then the sky darkens – and not just across Europe.”

Certainly, the prospects across the world are looking gloomier.

Recessions tend to be cyclical and come at 10-year intervals, and it is now a decade since the global Financial Crash of 2008.

Arguably, much more important than Brexit is the fact that ten years on Central Bank intervention continues, there are enduring low interest rates and that many nations are still on emergency monetary policies. And there is now a huge mountain of debt that everyone seems to ignore.

US Nobel prize-winning economist Paul Krugman is one of those predicting that there will be a recession in America by the time Donald Trump comes up for re-election at the end of next year.

The second half data from 2018 suggests that global growth has peaked and reported the onset of falling demand for goods and declining factory output in China, Germany, Japan and South Korea, to name a few of the countries particularly dependent on global trade.

In Davos last month IMF managing director, Christine Lagarde, warned that the risks of a sharper decline in activity had increased. Earlier this month came a report from the WTO (World Trade Organisation) that its quarterly indicator of world merchandise trade had slumped to its lowest reading in nine years.

Several Central banks, including the ECB (European Central Bank) and the Chinese have been trying to stimulate growth and investment.

You may remember that both Paul Krugman and Kenneth Rogoff, who is professor of economics and public policy at Harvard University, predicted the 2008 financial meltdown although they were ignored at the time.

However, interest rates remain at rock bottom and debt has been creeping up. As Krugman says, “we came into the last crisis with interest rates well above zero, we came into the last crisis with debt substantially lower than it is now … and we came into the last crisis with substantially better leadership …”

Herein lies the problem.

The world has changed, perhaps as a result of ten years continuing pain since of 2008 and little prospects of respite in the future.  We have seen a rise in protectionism and “populist” movements, most notably in Italy, in Eastern Europe and in Trump’s America, in his sanctions threatened against China, and in tensions between the US and Mexico.

If, as Krugman predicts and Rogoff warn, another economic crisis is looming it is unlikely that we will see the same, co-ordinated government action as was made by the G20 in 2008 that staved off a complete economic meltdown. Although this time there is little left in the tank, especially given the low rates of interest and huge levels of national debt. I see the seeds of huge interest rate rises.

To quote Rogoff in a recent article in the Guardian: “Crisis management cannot be run on autopilot, and the safety of the financial system depends critically on the competence of the people managing it…. The bad news is that crisis management involves the entire government, not just the monetary authority. And here there is ample room for doubt.”

How to make failure your first step towards business success

failure is just one step on the road to successNone of us is perfect.  Perhaps that is why we admire so-called successful people so much.

But behind almost every business success lies a series of failures. Just ask Thomas Edison, inventor of the electric lightbulb, or Richard Branson, who has made no secret of his past business failures, or even Luke Johnson, investor in and chairman of the recently-failed Patisserie Valerie and business blogger who has written extensively about failure and pertinently for him how to spot and prevent it.

Edison said of previously unsuccessful attempts at his invention: “I have not failed. I’ve just found 10,000 ways that won’t work.”

He also said: “Our greatest weakness lies in giving up.” This along with learning the lessons from failure is the key to understanding how successful people approach failure.

Failure would be better rebranded as a trial and error approach to achieving goals where essentially each instance of failure is primarily a learning experience. Each failure simply requires humility that recognises our fallibility and a degree of honesty, thought and a willingness to learn.

Converting failure to success is all about attitude

A business failure can be a devastating experience but the worst things you can do are wallow in self-pity, sink into a depression, give up or, even worse, blame others. These characterise the behaviour of a victim.

There are plenty of business gurus with advice about dealing with failure, and most will start with advising you to accept that you may have been to blame, but the key is to move on by analysing what, precisely, went wrong and to then try again, differently. Trial and error.

Firstly, you should resist the urge to repeat past mistakes by trying the same thing again, only bigger or cheaper. For example, if your customers aren’t buying your products or services you need to give careful thought to whether your business offers something they want, in the way they can buy it, rather than something you thought was a great idea but they don’t want or don’t know about. How much market research did you actually do?

Secondly, how competent are you at running a business?  Did you have a business plan? Did you regularly check cash flow, produce management accounts and so on?  Did you put in place robust credit control and other processes? We cannot all be good at everything so if you feel you do not understand any of these subjects properly you should have the humility to get in expert help and be willing to act on it.

Were you sufficiently passionate and committed to your business? It may have seemed like a sure fire way to make a lot of money, but that, on its own, is no guarantee of success.  It is also important to be emotionally invested in what you are doing and committed to making it work.

There are plenty of inspiring examples of people who have become successful after multiple failures but what they all have in common is an ability to be honest with themselves and to learn from others, to be passionate about their idea and to never give up.

Is outsourcing a blessing or a curse for SMEs?

outsourcing can reduce office chaosAccording to the GMB union the Government’s use of outsourcing has increased since the collapse into insolvency of the firm Carillion at the start of 2018, pushing the value of contracts up by 53%.

Whether the increasing use of outsourcing is a good or a bad thing depends on many factors.

For those sub-contractors and suppliers to Carillion who either lost contracts, money or work, it clearly was not a good thing as they await the outcome of investigations by Insolvency Practitioners to see whether there will ever be any recompense.

Pertinently for those owed money when a company enters an insolvency process, its employees are paid in priority or by the government if there aren’t sufficient funds, whereas its sub-contractors are treated as unsecured creditors and rarely paid anything like the amount they are owed.

But many SMEs depend for at least some, if not all, of their revenue on providing various outsourced services to their clients, from IT support and website building, to supplying parts or labour as part of a supply chain in construction, engineering and elsewhere.

Many self-employed people also provide services, from book keeping to marketing services.

The problems come when the buyer of the services is less than prompt about paying, often much later than in the terms and conditions, or perhaps they put pressure on suppliers to do work either for free or at extremely low cost, offering the “carrot” of more work or exposure that will be good for their business and result in further work.

Many self-employed people report, however, that the “carrot” fails to materialise and that in fact it puts a downward pressure on people and businesses offering services in their sector.

There is no doubt, though, that for those SMEs with the right skills and offering, and especially where there is a skill shortage, outsourcing can benefit both parties.

How to maximise the outsourcing benefits and minimise the risks

While using outsourced skills can improve a business’ output and reputation while minimising costs or at least avoiding employee liabilities, there are some pitfalls to be wary of.

The main ones involve not having the skills and owning intellectual property in-house which can expose you to supply and demand costs when business is growing. This is common in the construction and IT industries.

There is also the potential for the leak of sensitive information by people who are likely to have less loyalty to the business than those who are directly employed.

Another common problem is a lack of clarity about roles and contractual obligations.

Consistent quality of the work being provided and also adherence to deadlines may also be a problem.

At the initial stages of choosing a business to which to outsource a function or task, therefore, there needs to be very clear and detailed discussion of all the above issues with clear contractual obligations underpinned by deadlines with processes laid down for quality control and confidentiality together with penalty clauses should the provider fail to meet them.

By the same token, there should be a clear agreement on payment amounts and dates.

All of these should be included in a written agreement and signed by both parties as a contract which most likely will only ever be referred to when disagreements arise.

Both parties, those offering outsourced services and those buying them, can benefit from the transaction, but only if there is transparency with safeguards in place as well as honesty and integrity.

Are your staff loyal? Retaining valuable staff depends on how you treat them!

valuable staff should be well treatedIn a mature economy with an ageing population and amid rapidly-changing technology, businesses are finding it increasingly difficult to find the skilled staff that they need.

This makes it a buyers’ market for job seekers and the evidence for this has been mounting particularly in sectors such as construction, engineering, manufacturing and IT where wages are rising significantly above inflation.

In December a report from Barclays showed that only 6% of people aged between 16 and 23 wanted to work in manufacturing and official figures have also shown that workers are switching jobs in record numbers.

A BCC (British Chambers of Commerce) report based on a survey of 6000 businesses in January revealed that four fifths of employers in manufacturing reported difficulties in finding the right workers and in the services sector, which makes up nearly 80% of the economy, seven in 10 said they had struggled to recruit.

Persuading valuable staff to stay with your business

At the moment UK employment is at its highest level ever and depending on proposed Government changes to immigration rules, it may become more costly, and difficult, to recruit from overseas.

Projections for 2019 suggest that businesses will have to increase rewards and perks to secure and retain valuable staff and will have to become more ethical. Alternative work conditions, such as remote working may also be on the rise.

What do workers value?

First and foremost, they want to feel valued and respected and to be involved in the progress of the business for which they are working.

While adequate remuneration is a part of this, so, too is the possibility of progressing within the business so listening to their ideas is key as is offering training, particularly if parts of the business process can be automated.  The introduction of AI should not be seen as a threat but can be used as an opportunity to offer upskilling to at least some of those who may be affected.

There has also been a lot of emphasis on the disparity between women’s pay when compared with men’s and the pressure to show female employees that they are an equally valuable part of the team with the same prospects and opportunities is becoming increasingly important.

Employee wellbeing, too, is moving up the agenda.  38% of workers say they have suffered from work-related stress. While pressure can be a positive motivator for improving productivity, when it becomes stress it can lead to mental health problems.

A clearly laid-out set of policies on mental and physical health should be a part of every employee handbook and should be acted upon if the need arises.

Being part of an ethical company that is not afraid to publicise the fact can also be important.

Businesses can benefit from being more innovative in the way they support and reward staff and should look beyond their current policies for ideas.

This more than simply paying high wages, it is your actions and behaviour as a manager and leader that are also key for staff when considering if they should stay.

There are a number of quotes about valuing staff, I like this one by Richard Branson: “Train people well enough so they can leave, treat them well enough so they don’t want to.”

How can SMEs manage credit control and late payment effectively?

Prompt Payment Code: late payment penalty?There is no doubt that getting invoices paid on time can make a significant difference to SMEs’ cash flow and the lack of cash due to late payment can make or break a business.

Clearly, there are cash flow advantages for those late payers who string out paying their invoices for as long as possible, while the opposite is true for those waiting on the receiving end, often SMEs.

Towards the end of last year Xero Small Business Insights calculated that the average British small business is owed £24,841 in late payments on any given day.  It is clear that Government initiatives, such as getting businesses to sign up to its Prompt Payment Code, are proving less than effective. A year after the appointment of Paul Uppal, the small business commissioner, it was announced that his service had recovered just £2.1m in unpaid invoices on behalf of small companies. Pitiful!

All this has prompted the Government’s Business, Energy and Industrial Strategy Committee to call, yet again, for firms to sign up to the Prompt Payment Code and for the Small Business Commissioner to be given the power to fine companies that pay late. It says large firms should be legally forced to pay their small suppliers within 30 days.

In January Mr Uppal announced a traffic light warning system to be used to name and shame large firms that fail to pay their suppliers on time.

Will this strike terror into the hearts of persistent late payers and force a change of behaviour? I think not, although making it a criminal offence for directors would work, as currently is the case for HMRC’s Security Demands.

Do SMEs do enough to protect themselves from late payment problems?

Annual research by Bacs Payment Schemes showed that in 2018 small businesses in the UK faced a bill of £6.7bn to collect money they are owed by other companies, up from £2.6bn in 2017.

It is a problem that the FSB (Federation of Small Businesses) estimates is the reason for the collapse of around 50,000 businesses a year.

Some, however, would argue that SMEs should take more responsibility for and be more aggressive in recovering monies owed for the work they have done in good faith, but it’s hardly a level playing field. The cost of money claims through the courts is now horrendous.

Of course, a well-managed business should have a robust credit control system in place, which sets clear expectations from the moment it contracts for work, including a stated agreement with the client that invoice payment will be due within a defined number of days, usually 30.  It is wise to also credit check all new customers. It is also wise to check payment is scheduled for payment before it is actually due; this deals with most excuses in advance.

Payment should be made as easy as possible with online banking details and address for postal payments included on all invoices. If it is feasible perhaps a small discount could be offered to those who pay early or within a stated time period. A supplier to one of my manufacturing companies offers 90 day payment terms with a 40% discount if payment is made within 30 days. That’s my margin so late payment is painful.

The credit control system should also have clear, robust procedures for following up on late payers, from sending out reminder letters that make it clear that failure to pay will likely incur significant costs and disruption such as suspension of the account.

However, even with a robust system in place, and one on which the business acts, there may still be late payment problems and SMEs can use such services as factoring, where another company takes on responsibility for collecting and chasing invoices, or invoice discounting, where, again, another company takes on the task of chasing invoices but with the SME having ultimate control.

In both cases, however, these are fee-paying services, effectively “lending” money up front to the SME at less than the full value of the outstanding invoices. If you use such services do be aware that many have a recourse clause so make sure to check if you remain liable or have to reimburse the lender.

While borrowing against book debts might improve an SME’s cash flow, it comes at a price and often with hidden additional costs and conditions in the small print. This is where an independent broker, not an online one, is a useful ally when looking for book debt finance.

Another option is to take out credit insurance although this normally only pays out in the event of your customer going bust and doesn’t solve the late payment problem.

Why should a business have to pay extra/ lose part of its revenue in order to recover money promptly for work it has done in good faith?

What is needed is robust, effective legislation, and follow-up action, with sufficient teeth to eradicate this persistent problem once and for all.

A free guide to debt collection for SMEs is available for download at:

https://www.onlineturnaroundguru.com/p/getting-paid-on-time

Is your business barely managing and if so why?

Business barely managing in stormEvidence suggests that many UK businesses are barely managing when compared to foreign-owned businesses of equivalent size operating in the UK.

At the moment it is easy to blame everything on the uncertainty surrounding the outcome of the UK’s negotiations to leave the EU, especially as political positions remain entrenched and seemingly irreconcilable with just 40 or so days to go before the deadline.

As the most recent productivity figures from the ONS (Office for National Statistics) showed, productivity and output per hour fell to their weakest in two years at the end of 2018, prompting FSB (Federation of Small Businesses) Chairman, Mike Cherry, to opine: “”Productivity data demonstrates exactly what a prolonged period of uncertainty does to an economy. Small business confidence has dropped to its lowest point since the financial crash, with four in ten firms expecting their performance to worsen.”

Of course, Brexit has prompted more businesses to divert their attention to do such things as stockpiling raw materials or components to mitigate any potential supply chain disruption, and of course, investors have been holding onto their money during this period of uncertainty.

It has also been suggested that another inhibitor to SME growth and scaling up has been what is known as the Seven-year Rule, whereby tax breaks for investors, made through tax-efficient venture capital trusts or via the enterprise investment scheme (EIS), are only accessible to companies for seven years after they make their first sale. This, it is argued, makes it harder for SMEs to access the finance they need to scale up.

Is business barely managing a “British Disease”?

However, in this context I would argue Brexit is a distraction and a convenient excuse for poor productivity and that the answer lies in the way UK businesses value, or actually don’t value, their people.  This is backed up by plenty of research from many sources.

According to the Guardian business and economics opinion writer Philip Inman there is a significant difference in productivity between the way foreign-owned businesses in the UK and UK-owned ones are run.

According to ONS figures foreign-owned businesses make up one in four of large UK-based businesses and are twice as productive as their domestically-owned equivalents. When it comes to medium-sized companies the foreign owned ones are about three times as productive.

Why should that be?

There is, argues Inman, plenty of evidence that the foreign-owned UK businesses pay attention to two things that affect productivity: processes and structure.  The ONS has found that there is a positive link between attention to these two and productivity.

Other researchers have argued that UK businesses do not value or pay enough attention to good middle-tier management, especially in family-owned firms that have been running for more than three generations.

Middle managers often have little management training or support and this leads to a lack of confidence among both senior managers and workers that their ideas are valued and suggestions acted upon.

UK businesses of all sizes clearly need to pay more attention to their people skills and competence, their processes and structure, especially once they find themselves cast adrift on post-Brexit competitive waters.