The Banking community – it’s getting to be a bad habit

The Banking community – it’s getting to be a bad habit

Last week we witnessed the fiasco brought about by the outsourcing of IT systems to the sub-continent. The rationale being the cost savings.

The damage caused by last week’s collapse in online banking services of RBS/Nat West is incalculable.

There is little comfort to had from the Governor of the Bank of England calling for a full investigation. Even the most casual observer could identify the cause – forget about providing an efficient service the mantra is cut costs by all means possible.

Now we find the Banks embroiled in yet another fiasco namely the rigging of LIBOR rates. This action is both morally indefensible with the added element of illegality yet still the Banking community behave with a staggering arrogance towards their Shareholders (in the case of some UK institutions the Tax Payer) and their Customers alike.

The level of managerial incompetence demonstrated by these self styled “Masters of the Universe” beggars belief.

It is small wonder that we find ourselves again staring into the abyss.

To an outsider it appears that despite all the rhetoric, nothing has been learnt and little has changed. The only calculations which are being rigorously scrutinised by the Bank’s management are the size of their forthcoming bonus payments.

It is one of the great ironies that is that despite all the evidence of their incompetence and sheer recklessness we once again find ourselves in thrall to the very architects of the global financial disaster – the Bankers.

In the words of Henry Ford “If people understood the banking system they would revolt”.

Finding the philosopher’s stone.

In trying to boost the bottom line, there are 2 obvious solutions, (a) Cut operating costs and (b) Increase Revenue. If you’re the FD you’ll probably aim for the double.

The Sales Director only has one shot in his/her armoury namely increase sales. Sales targets can always be raised but a sense of commercial realism also needs to be applied.

If you are marketing a totally unique product or service the task is easier but for the most part there are many companies offering a similar range of products in a broadly similar price range.

As such for most companies it is about getting back to the basics – ensuring orders are processed efficiently and in a timely fashion. Following up on customer satisfaction, in short providing what in old fashioned terms was called “service”.

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Don't get caught out

A combination of recent market volatility coupled with latest pronouncements from politicians and economists alike have done little to restore confidence and now more than ever is the time for good housekeeping and firm controls.

Constant monitoring of counter party risk is the order of the day combined with disciplined inventory control.

Just because a customer has always being reliable in the past is unfortunately no guide as to future performance. Look out for tell tale signs such as unusual ordering patterns, delays in payments etc. Very few businesses fail overnight and there are usually enough warning signals which should enable a supplier to reduce its risk

The coming months will continue to test but undoubtedly there will also be opportunities for those placed to take advantage of less efficiently organised companies. Make sure that when the dust eventually settles that your company emerges in a stronger position.

Know when to hold – know when to fold

In business as in poker there are times when discretion is the better part of valour.

Put simply, some of the best business deals are those you turn away.

All organisations operating in today’s climate need to have constant and rigorous focus on their commercial exposure.

Against the current competitive background it is obviously difficult to contemplate turning away business especially from a customer of long standing.

However an objective assessment may well lead to the conclusion that in this instance the business would be left to others.

It may well be that turnover suffers when stricter controls are in place over such elements as payment terms and credit limits.

The reward for such fiscal discipline is obvious. Avoiding defaults by customers not only protects the company’s bottom line whilst allowing focus to be placed on more profitable activities.

Time to grasp the nettle

Every business transaction contains an element of risk, yet at the same time how satisfactory are the mechanics for managing risk?

In recent years we have witnessed just how costly the laissez faire attitude to risk was in many institutions from large corporations to smaller SME’s.

In the never ending quest for larger profits many of the saner measures of business were abandoned.

An analysis of recent disasters all have one common denominator – the architects of these calamities went hurtling over the cliff like lemmings.

There has never been a more pressing need to examine all areas of exposure.

A forensic analysis of the current Debtors Book might make for uncomfortable reading but like most unpleasant tasks it should not be ducked.

Better to take remedial action such as a write down whilst you are in control of your own destiny rather than have a 3^rd Party appointed to do it for you.

Winning through in difficult times

Viewing the general air of gloom that now prevails in the current climate it is hard to remember the halcyon days of easy money (credit) and the all pervading feeling that the party would never stop.

There is no doubt the world and his wife embarked upon a collective spree for which we are now picking up the bill. With the benefit of hindsight the warning signs were there to see but these were readily ignored. One quotation springs to mind “They that sow the wind, shall reap the whirlwind"

The problem now is that as always there is an over-reaction and just as we never saw the top there is also the certainty that we will not see the bottom.

What is needed is a clear and unemotional assessment of the current climate, whilst few would dispute that difficult times lie ahead we are far from a financial Armageddon.

As always the markets are driven by fear and greed but the importance of sentiment should not be overlooked.

Until and unless the Doomsayers gain a sense of perspective it will be hard to imagine business and markets on a sustained stable footing.

The Greek crisis - a metaphor for our times

In many ways the Greek crisis is a metaphor for our times.

A customer develops a pattern of late payments but far from being called to order the supplier fearful of alienating the customer allows this to become the norm.

When the inevitable tipping point is reached there is no alternative to continue to support the errant buyer or risk realise a loss.

As it is with the Greek situation and the realisation that concessions will have to be offered by the international community in order to keep the plates spinning rather that witness the typical Greek folk custom of plate smashing.

Accompanying this need to reach out to the fledgling Greek coalition there is a growing perception that the problem is just being kicked down the road.

However as the international banking community continues to ponder the consequences of another serious blow to its capital structure the UK banking community will not be immune. At the very least there will be a renewed focus on exposure and this will impact on their willingness to lend.

Now more than ever businesses must demonstrate that they have full control over all aspects of their operations. Reporting procedures must be strictly observed and any potential problem areas or customers brought quickly into line. As it becomes harder to borrow, positive cash-flow is critical.

A true and fair view of the state of the company’s affairs, or smoke and mirrors?

During the recent failures in the global financial system one group of participants have remained largely unscathed for their part in the train wreck, the Auditors.

Now almost as an afterthought the House of Lords has produced a report slamming the profession for failing to predict the financial crisis. It said that firms needed to do more to create a culture of professional scepticism claiming that the level of challenge on intangible assets such as goodwill was woefully inadequate.

Essentially there are many instances of conflict of interest such as taking on consultancy work for Clients and becoming too cosy with management teams.

It is all too easy for companies to bully the young staffers sent in to do the grunt  work .For example what chance has a newly appointed auditor walking around a factory warehouse to adequate value stock? In reality they have to rely on the company for “valuations” and this can result in a totally inaccurate picture being presented.

The validity of a company’s accounts reflects the integrity of the company which is being audited. As is being demonstrated with the banking crisis in Spain an unrealistic valuation of the property portfolio either through deviousness or sheer incompetence will ultimately have disastrous consequences.

Rarely will a company or individual be able to hide losses indefinitely as witnessed by the likes of Maxwell, Madoff, and Stanford.

Cutting the Gordian knot

The continuing stagnation in the UK economy has prompted the Bank of England to launch two new stimulus packages.

The Banks latest plan came in response to the worsening economic outlook, governor Sir Mervyn King said.

Together with the government, it will provide billions of pounds of cheap credit to banks to lend to companies.

It is the small/medium companies (SME’s) who have been most impacted by the reluctance of Banks to lend. During the last 18 months there has been acceleration in the number of companies going into administration and or bankrupt.

Despite the intentions of the Bank/UK government to free up lending it will require a sea change in the banking community’s attitude if they are to provide funding.

Fearful of more harm being done to their own balance sheets from the unending crisis in the Eurozone it is hard to imagine the Banks taking other than a hard line attitude towards companies seeking additional lines of credit.

Any approach must be accompanied by a clearly defined strategy for growth together with a credible assessment of current liabilities. This is a time when recalcitrant Debtors and slow moving Stock are luxuries that no organisation can afford.

Difficult times forge strong alliances

 

All too often the focus on the current economic background accentuates the negative. However one of the benefits emerging from the current business climate is the value that can be placed on a mutually beneficial Customer/ Supplier relationship.

As increasing numbers of business operate on a “just in time” inventory basis it is vital that a good understanding exists between supplier and Consumer.

In as much as a Supplier will be prepared to go the extra mile to ensure that his Buyer receives his goods on time and in good order so it behoves a Buyer to ensure that he pays as required and is not abusing the goodwill of his Supplier by “pinching” some extra period of credit.

If both parties work together in a professional and commercial manner then it will strengthen the relationship and both will emerge from the current difficult situation with a renewed confidence in each other and a better based business for the long term.

Crossing the line

The most important component in any business relationship is the question of trust.

The ultimate demonstration of trust and good faith is when a Supplier delivers goods to a Customer on Credit terms.

It therefore is incumbent on the Buyer that they acknowledge this act of trust and observe the agreed payment terms.

With the current pressures it is easy to understand the temptation of “pinching” a few days extra credit but this type of behaviour soon begins to pall. Once a Supplier feels that their Buyer is taking undue advantage the relationship is damaged sometimes irreparably.

For any relationship to be sustained there has to be mutual benefit. When a Buyer gains a reputation for persistently crossing the line the merit in maintaining the account is questionable.    

Commercial post mortem – have we learnt anything?

All too often in the course of commercial post mortems, the Management and Shareholders of troubled organisations end up asking “how did that go wrong?”

It is an incontrovertible fact that many companies fail to address problem issues early enough to avoid an oncoming crisis. When in reality the causes of the problems were all too readily visible.

The signs of a troubled business are all too apparent – these include lack of controls, lack of strategic vision, a demotivated workforce and obsolete or valueless stocks etc

Instead of grasping these nettles, often the preferred option is to engage in a variety of exercises ranging from ill judged acquisitions (think RBS/ABN), totally pointless projects such as rebranding or the launch of another product range destined to fail for the above reasons.

Inevitably the harsh realities come into play but for many companies it is at that stage too late in the day.

The merit of a Pre-emptive strike

The current economic data point to the fact that the coming months will produce difficult challenges for all. As domestic budgets are ever more squeezed this will impact on businesses across the board.

This is an appropriate time to conduct a top to tail analysis of your business.

Undoubtedly there are areas which would benefit from some radical adjustments/ change of direction. The consequence is not acting now could have very negative effects in the next few months.

Now is the opportunity to tackle difficult issues rather than adopting an ostrich "head in the sand" attitude.

When trying to explain the outcome of a disastrous strategy to your Shareholders or Bankers it will be of little comfort to trot out the tired old defence “it seemed like a good idea at the time”.

The pain is Spain – it’s the Banks who are to blame (3)

Over the weekend the Spanish Economy Minister announced that Spain would seek a cash injection of 100 billion Euros to bail out its beleaguered banking system.

In the past 3 years this is the fourth member of the EU (following Greece, Ireland and Portugal) who have had to go cap in hand seeking financial support.

The ill conceived strategy by the Spanish banks of putting all their energies into fuelling a speculative property boom has come home to roost.

However as with any “club” the action of its members can have far reaching consequences. The UK Chancellor George Osborne has been quick to point out the dangers faced by Britain by the ongoing Eurozone crisis. He commented “our recovery already facing powerful headwinds from high oil prices and the debt burden left behind by the boom years – is being killed off by the crisis on our doorstep.”

These ongoing developments will make it increasingly hard for companies to get funding support from the banks. Never has there been a greater need for good housekeeping. Debtors must be strictly monitored whilst stock holding is kept to a minimum.

Expect greater scrutiny from Auditors as more and more people are nervous about signing off any accounts. These challenging times require a robust approach from management to each and every element of the business.

Master of your own destiny

External factors over which little control can be exerted continue to buffet all business sectors. However, every organisation does have a potentially winning weapon in their armoury namely the opportunity to offer excellent customer service.



In these difficult times everyone expects ultimate value for their cash be it the corporate customer or the man in the street.



It is a paradox that as trading conditions become tougher and business harder to win the level of service offered by many Suppliers is falling very short of acceptable standards.



From the frustrations of automated answering (devised surely to test anyone’s patience to the ultimate degree) to the failure to meet agreed delivery schedules Customers are left feeling that their business is not valued.

Little wonder that they choose to vote with their feet.



Customer service is not a difficult act to pull off – in reality all that is required is to give the Customer the feeling that their business is important and they are valued, not just “one of a number” or even worse a nuisance.



Those businesses that master the art of Customer service will emerge from this current difficult period all the stronger.

Cheques and balances?

Cheques and balances?

Executives at FROB Spain’s bank rescue fund are about to appoint PWC, Ernst & Young, Deloitte and KPMG to run a “health check” on its banking systems.

Recent events have underscored how vital it is that clearly defined operational and reporting procedures are in place.

In many organisations the Senior Management simply do not have the understanding of the mechanics or the day to day activities of the business which they purport to run.

For example I have worked in trading environments where totally unrealistic profit target have been passed from Board level to trading departments. No cognisance having been given to the disproportionate risks which need to be taken to achieve these targets.

Some of the most spectacular financial flame outs have followed a period of ostensibly highly successful trading. In their desire to recognise these “profits” no thought were given as to how they were being made. In such times it would be well to take note of the old adage that is something looks to be too good it usually is!

If your company is bucking the trend in these difficult times it may well be that you are implementing a winning formula.

However history tells us that it is sometimes a prudent course of action to look under a few stones – just in case.

In these difficult times the “hard nose” approach has merit

 As funding issues continue to bite more and more Customers are actively employing various tactics to delay payment to Suppliers. Credit control and the monitoring of payments is an increasingly critical element of every business.

When a Customer exceeds the agreed payment terms, they are in reality using the Supplier as an alternate (unsecured overdraft).

This situation if left unchecked can spiral out of control. In a worst case scenario the Supplier is in reality forced to keep “trading” with the errant Customer for fear of realising a bad debt.

Think of the parallel to the ongoing Greek situation – it is a slippery path.

Slack policing of accounts receivable will have serious consequences. At best tardy payments damage cash-flow and at worst can often be the precursor of a company failing with the end result of a total write off.

Take a long hard look at your accounts receivable – are you happy to see 30 days drift into 60 and beyond?

Consider the damage that is being done to your company’s financial position?

Ask yourself “who is taking advantage of us?”