In Focus Collections
Left-right: Allan Poole; Atul Vadher; Caroline Asquith-Turnbull; Dave Mullett
What are the biggest challenges and opportunities facing the commercial credit sector at the moment? AP: Of course everyone is going to talk about Brexit and the uncertainties we will face over the next 12 to 18 months. However, putting that to one side, one of the biggest challenges is legislation and compliance. Whether it is because of GDPR, new and complex Pre-Action Protocol (PAP) regulations, or an active and resurgent Financial Conduct Authority, many businesses feel the landscape changing rapidly. But those firms that can be on the front foot, invest upfront to ensure they meet these challenges, take training and systems seriously to reap the rewards from those less prepared, which end up either suffering or exiting the market.
DM: The PAP certainly poses a real challenge, and it is more of a commercial one as to whether or not they have now put in legislation that is so on the side of debtors, that it makes you wonder if it is commercially viable to deal with small, independent businessmen and women who have set up their own partnerships or sole- trading businesses. For the returns you are going to get from it, is it worth the possible pain you are going to suffer should it go into default at a later stage? It really does beg the question as to whether you offer credit to sole traders or not, purely based on the requirements of the PAP.
AV: It depends on the industry. If you are providing a product, then your first port of call is title; you would try to cover the asset. To go legal on a company, the relationship must have broken down so you can still statutory demand them, and then you are going through another route.
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KM:When I was in the brewing industry, 95% of the firms you traded with were sole traders and partnerships, and the business I am with now, it is 99% limited companies.
LJ: Consumer spending remains subdued and retail is very volatile since the first quarter of 2018. Independents are struggling and they mention this to you when you are chasing invoices. Consumers are also dragging payment out since last year – debt recovery has been delayed another 30 days or more since PAP became effective.
PB:We would certainly ask the question why somebody was trading as a sole trader when they did not need to. There was a time, when Gordon Brown was chancellor, that he introduced so many incentives for people to operate on a sole-trader basis, but they were then taken away and it is much more of a level playing field. The PAP is certainly very frustrating – you find that, if you are dealing with someone who has any experience of it at all, then they know how to play it and all they have to do is to put in a defence, and then the whole thing starts all over again, and they can just keep going around that loop until someone just gives up the will to pursue it. So it has a lot of unintended consequences.
CE: In some businesses, you will have personal guarantees that you will be going after. So the PAP does loom large – it can be a three-month cycle if the debtor chooses to drag it out. It depends on the debt, but we do a lot of ground-rent recoveries, which is usually against individuals who have bought a property which is long leasehold. So one solution we have come up with there is to send a pre-PAP letter demanding payment within seven days. That is getting some good results. So this is a possibility, to make it clear that this is a precursor to any legal action and does not effect their rights.
AV: It comes down to the basics of ‘can’t pay’ or ‘won’t pay’. If you know that they are not going to pay you, as a sole trader who knows the system, then they will play the system. So it is a question of working out who is genuine and you would do that through your due diligence, through the trade and the conversations that you have with them. In my years of working in the industry,we have had to be very commercial at times, and very financial at other times. When you need the cash, you have to be financial, but when you need the business, then you have to be commercial. So you have to be able to flip between the two, just depending on what is happening in the market. You have to be adaptable or else you could lose customers to your competitors. It is like this forum today – it is a question of being aware of what is happening out there in the market.
In my years of working in the industry, we have had to be very commercial at times, and very financial at other times
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PB: I think it is fair to say that most firms do not start out with the intention to defraud, likewise most buyers do not start off with the intention that they will not pay you. But then life happens somewhere along the way, and there are so many pitfalls that you can
April 2018
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