This episode is sponsored by Dell Technologies. Dell can help push your business further, with innovative technology designed for small business.
Featuring:
Alan Soady,
FSB Head of Media and Communications
Mark Rankin,
Head of Commercial Services, Markel Law
Jon Watkins Welcome to this latest FSB Monthly Round-up podcast, which this month, is brought to you in partnership with Dell Technologies, and is the go-to podcast for news, tips and important information for small businesses and self employed. This episode is our May 2023 Small Business Round-up in which we will take a look at some of the important issues hitting the headlines at the moment, and which you need to be aware of right now as small business owners. And this month, we will be diving into two specific issues important to small businesses right now. But first is the latest results from FSB's Small Business Index, the organisation's confidence barometer, which surveys small businesses every quarter on their outlook for the period ahead and how confident they are. FSB expert and regular guest of this podcast Alan Soady is here to talk us through that and will explain why last quarter's findings were of particular interest. And then we're going to talk to Mark Rankin from the FSB debt recovery service, who will explain exactly how that service can help small firms recover money they are owed, as well as some steps they can take to improve their chances of getting paid. So they hopefully don't need to use debt recovery services. Alan, Mark, thanks very much for joining. Alan, I'm going to come to you first, if I may and start on the subject of small business confidence and the latest findings from the FSB Small Business Index. I guess start by just telling us a little bit about what the Small Business Index is and why it's important.
Alan Soady Hi, Jon. Yes. So of course, it is basically a quarterly survey, a kind of temperature take on small business owners and the self employed, what they've experienced over the last three months in a number of different ways, their expectations for the next three months. And we look at that in terms of things like growth, ambitions, revenues costs, if they tried to access finance, what's been their experience? Or do they expect to try to do that? And how optimistic are they on that? International trade, for those who are employers, we look at whether they're likely to increase staffing, reduce it, keep it about the same over the next three months. And then we also break that down into different sectors. So we can see trends as to whether particular sectors are maybe at the moment more optimistic or less optimistic than others. And then all of that goes into a big pot and gets poured out into an overall across the board, small business confidence score. And that is basically those who are overall, feeling more positive versus those who are overall, still feeling more pessimistic.
Jon Watkins Okay, that makes sense. You've just finished gathering and analysing the data from the last quarter. What were the key findings? Why were they significant?
Alan Soady I think what comes out from the latest findings from the first three months of this year is there is improved confidence. But let's not overstate it - it's still in negative territory, there is still a lot of pessimism. And there are still factors holding back growth. But the optimism is at least on the up a bit. And if you look at it compared to last quarter, and compared to a year earlier, it's definitely up quite significantly on the final three months of last year. So quarter on quarter definitely up quite a lot overall. But having said that, if you compare it year on year, then to the same time last year, it's still quite a lot lower. The actual overall score was still just in negative territory, much less so than last time, but it was actually -2.8. So that's slightly more people on the pessimistic side than on the optimistic side. But still feeling like it's getting a little bit more optimistic. Having said that, we found that two in five saw revenues fall during the first quarter of this year, only one in 1 in 3 saw an increase in that. And then you can also have a look at the breakdown of individual sectors as well, as I mentioned. And so there's definitely been a significant rise in confidence in sectors like wholesale and retail and accommodation. But that's only compared to a very, very, very pessimistic survey with that group on the previous quarter. So coming from a very low base. So yes, it's gone up quite a lot, but it's still among the most negative. The only sector really that we found in positive territory in terms of significantly more optimism and pessimism was the one that we grew up as professional, scientific and technical, and that was up quite a lot, interestingly, quarter on quarter. If you look at cost as well, though, that is still really, really holding people back. 92% of those that we surveyed said that their costs are up year on year 38% said that that was a significant increase year on year. And I guess none of us are all that surprised with that. And it's not surprising what the main drivers of that are, of course, its energy bills, utilities, its staffing costs, its input costs, its fuel, its its rent, and it's the cost of finance, those are all in the mix there - that mean that people, those cost pressures, the cost of doing business crisis is still here with us. And that is still risking holding back growth.
Jon Watkins Yeah, some interesting stats there. What do they tell us about the overall small business outlook and where we're at, do you feel as though we're starting to emerge perhaps from some of the difficult period that we've been going through into a more optimistic period, generally?
Alan Soady It feels as though there may be a glimmer of light at the end of this awful tunnel that we've been through, particularly over the past year with this cost of doing business crisis that, of course, came on the back of a very different, difficult couple of years with the pandemic. But there are still some underlying factors coming through in these in these findings, which suggests that even if there is a bit of light at the end of the tunnel, it's still difficult to know when we quite get to the end of that tunnel, and how precarious the, journey on the way to there is. So for example, if you look at revenue expectations over the next three months, 39% not bad expecting a rise in revenue, but still more than a quarter expecting as they head into the summer that they will see a drop in revenue 46% expect their business to grow. But therefore, the rest either expected to go backwards or to stay still, there's been a slight reduction from the last quarter of the number of businesses saying to us that they unfortunately expect they're going to have to downsize, sell or close over the coming three months, but still 13% are saying that. So that's a little bit down on last time, but still a stubborn number there. And I think a couple of other things I'd pick out that are a bit of a cause for concern as well, the value of exports has gone down for many over the last three months. And in terms of expectations, more expect a decrease in the value of exports to continue than expects an increase over the next three months. And then also, if you look at access to finance, that is coming through is still a very challenging thing, both actually getting finance at all. If it's loans, then getting a loan for an interest rate that's affordable. In fact, 20% saying they'd been offered nothing for less than a 10% interest rate. And also a really high number of people who've accessed finance saying that it was for cash flow, rather than investment to expand the business, almost half of those going for finance over the last quarter said that it was for for basically day to day cash flow. And that to me suggests that late payments is still an issue.
Jon Watkins Yes. And we'll come on to that momentarily. And you mentioned access to finance there. And one of the things that a lot of us are wondering about is what will happen next with interest rates, especially those people that are seeking loans or have loans. Bank of England makes that decision and its chief economist has made some pretty interesting remarks in the past few days. Did he give any clues on what the bank's thinking is going forward? I think you could read quite a bit into it actually. And a lot of the headlines around the comments from this guy called Huw Pill, the the Bank of England's chief economist, he's going to be the one who's going to be advising the Monetary Policy Committee who take that decision on interest rates. A lot of the newspaper headlines were around, saying that he was suggesting that we just all should accept that we're going to feel poorer, that's business owners, and employees and anyone else in society and where you've had these massive increases in energy costs, for example, that we you know, that we will feel poorer. Underneath that, he would make some quite controversial comments about saying that people shouldn't be asking for wage increases, if they're an employee, if they're an employer, then they shouldn't be giving those wage increases because he says it's inflationary. And to small business owners and other business owners. He was saying, 'Don't put your prices up'. If you put your prices up to cover your extra energy costs and other costs, then that's just going to add to inflation. Now actually, we at FSB thought that was a pretty out of touch comment. An awful lot of our members have absorbed everything they can in terms of these extra costs without putting prices up. Many of them depending on their business and who their customers are simply can't put their prices up or not to the extent that would cover it. But I think what you can infer from that is is it sounded like he was saying, interest rates will keep going up while inflation is stubbornly high. His view is that, that's going to stay high when prices keep going up, while wages keep going up, and therefore, to me, that sounded like the Bank of England is not yet nearing the point where it's thinking of either just pausing and keeping them where they are or bringing them down. So there could be more bad news. And if you, if higher interest rates use bad news, it is too many of us, then there could be more to come. Yeah. And what would you like to see from government right now to to further help small businesses at this difficult time?
Alan Soady Well, I think it's important that there is a recognition that even when we're talking about confidence going up a bit, there are still challenges, there are still big barriers to growth. And there are many things that government can look at, to help overcome their energy costs after the government's initial support scheme over winter came to an end. You know, a lot of businesses very recently have seen their energy bills, because of that reduction in support, shooting back up, if that begins to cut through to businesses even having to close down in some cases or scale back activity, there is a case for the government to look again at whether there could be some more short term support for small businesses on that. Also on business rate, many people's bills would have changed recently, some of those have gone up, we actually think that there should be far more, 1000s more, small businesses taken out of business rates. And therefore the rateable value at which it kicks in the threshold at which it kicks in should double from its current level in England of £12,500 to £25,000. So those are just two things the government could do. Also the ongoing issue of late payments that I mentioned a moment ago, this is where often bigger businesses are paying their smaller suppliers and contractors late, that is really hampering cash flow. That is what we're seeing coming through is people borrowing just to stay afloat day to day, there are things that we've suggested to the government that they could do, that would actually be really effective in forcing the hand of bigger businesses to pay on time and incentivize them as well, not just forcing hands, but incentivizing bigger businesses to treat their smaller suppliers better.
Jon Watkins Yeah, fantastic. The research finding survey findings that we were talking about are from small business owners themselves sharing their experiences and their outlook. How can other small business owners get involved and have their say?
Alan Soady Yeah, this is a really good question, because we want to hear from as many small business owners as possible when we do our research, and it's sometimes these surveys that are more than general temperature take, we sometimes have research on more specific issues as well. And we would love you to take part the surveys usually only take about 10 minutes, if you want to sign up to getting automatically reminded about all of them that we do, if you go to our website, fsb.org.uk/bigvoice. And you will see details on there of how you can sign up, you and you only have to put the details of your business in once, then when you get the second, third, fourth survey, you don't have to go through all that again. But also, if you just want to look out and especially if you're not an FSB member, but you still want to take part, if you're a small business owner, keep an eye on our Twitter account at FSB_policy. For those who are members of FSB and who are employers, you will be getting an email into your inbox if you're opted into emails on this kind of stuff from us in the next few days, where we're doing a survey next on living wage. So if you want to take part, keep an eye on that, have your say because the more that you have your say and help us, it helps us to give all small business owners a bigger voice when it comes to influencing those in positions of power and political influence to hopefully make life easier for everyone in their businesses.
Jon Watkins Thanks, as always, Alan that was was really, really good. Mark, I'd like to come to you now, if I may, on this topic of debt recovery. Alan was just talking about it there. And we've covered the impact of late payments on small businesses plenty of times on this podcast, but can you can you just sort of start by reiterating how big an issue that is and how it's impacting small firms?
Mark Rankin Yeah, of course. Thanks for having me today. Alan, that was really interesting. And thanks for some of the crossover points as well, that you flagged as you were going along. Yeah, I mean, it's always been a massive issue, I think, late payments, you know, any small business cash is king, isn't it? So it's always going to be on people's minds. It's not a new issue, certainly predates COVID. But COVID didn't make it any better. As Alan flagged there, there was certainly some supply chain pressure that we saw during the COVID times when businesses were hanging on to money that bit longer. And of course, who suffers the most was the small businesses at the bottom of that chain, who are the ones who were relying on the the money flowing down to them from the big boys. So I think you know, it's hard to find some accurate stats around how big a problem is. I'd imagine all of your members will feel it in one way or another but I did come across some stats before this around the government saying there's 23.4 billion pounds worth of late payment, for services that are out there, that's owed to small businesses and, and also that a third of all payments to small businesses are late. Now, that's not to say that a third of small businesses are suffering late payments, it's actually saying a third of all invoices are being paid late. So, you know, like I say, I'd imagine it's touching upon every member in one way or another. So yeah, you know, the recessionary pressures we're facing at the moment, certainly, it's seen as another pinch point once more, we've seen a real uptake in the debt recovery service recently. And I think that's probably down to the same thing that we had in COVID, where people are hanging on to the money longer, and also, perhaps pursuing debts that they might otherwise have had to write off as bad debts, because it wasn't seen as being worth their time and effort to chase them down previously, but now, that money is it all the more crucial to keep the business alive. And I think Alan made some interesting points there around access to finance. And around it, how it's not so much you going out there looking for the money so that you can grow the business, it's just to keep it going. It's the cash flow point. And as well as cash flow, as well as the effects of the balance sheet and access to finance to help you grow. You can't you can't overlook the human impact that these debt recovery issues do have on small business owners, you know, takes time out of their day. They're chasing down debts for work they've already carried out, services they've already provided rather than looking forward at how can they grow the business? What can they move on to next, they're having to spend more time chasing up what they should already have been paid for. And then there's the mental wellbeing as well, you know, I'm fortunate enough not to have to be too worried about where the money's coming from. I'm obviously employed by a large organisation, but I can imagine how much stress it must be if you're having to cover off staff as well as your own income. I'm worried about all those sorts of things. So I think there are there are so many reasons why this is having a massive impact on small businesses.
Jon Watkins Yeah, those are issues that we've we've certainly covered on this podcast in the past, as well. You mentioned the debt recovery service there. Just just explain to us what it is. Why and when it was set up.
Mark Rankin Yeah, so June 2020, Markel Law got involved in in running the debt recovery service. It was set up, I mean, FSB has always been a big campaigner in this area. And I think it was recognised that members need the support to be able to give them a variety of ways in which they can pursue these late payment and debtors. So it's the way it works is there's various different ways into the service. But hopefully, you members will be used to using the advice line for legal and tax advice line. So that's certainly one way you can get advice from there from Marco law, to help you to empower you, I guess, to understand what your what the members legal rights are, and how they can go about chasing down what levers they might be able to, to pull to help to get that payment through. There's also a self serve section on the the FSB, legal hub, which enables members to access a series of guides to help them to explain to them how the legal process works, what the small claims process looks like, what the steps might be, if they were to go down that route, but also to give some high level guidance around the sort of credit process generally, really, I suppose. So looking at when do you chase for how vociferously do you chase, and then there's always going to be a point at which unfortunately, some people don't engage, and then you might need to go legal on it. And that's where my team come into it. You can instruct marker law to send a Letter Before Action will go out and our letterhead, which often has a bit more force than a letter from the member themselves. I think we all probably know from our own experience, it can be quite easy to ignore a series of letters or emails from an individual who keeps threatening legal action, but actually, at some point, you have to think about well, actually, am I going to follow through on this threat and there needs to be escalation to get the other the other party to engage in the process sometimes. So you know, certainly, a letter from ourselves, can help with that. It's not a classic debt collection letter, which might be one page, just saying, this is our client, this is how much you owe. We do spend some time going into the details around the formation of the contract, we set out the legal position. We provide all the necessary bells and whistles to ensure that you've ticked off what the court would expect you to do pre action so that if you then need to go in issue at court, you can do so safe in the knowledge that you've done what's expected and you won't be penalised on costs or otherwise by Judge at the end who thinks that you should have done something differently? And we look to provide our services as cost effectively as possible. Obviously, we do fixed fees for the awesome All claims matters and for the letters before action, and then wherever there is a larger debt to be pursued. So small claims will be anything under 10,000, anything over 10,000. And we'll provide a bespoke fixed fee quote for the member. And we won't incur any of those costs, obviously without their approval. So this is kind of a no obligation service will outline what the next steps will be and what those costs will be, and then for the member to decide whether they want to proceed on that basis.
Jon Watkins Okay, and how long typically does it take your firm to get money back, if they go down this route? If they go through this process, and how involved might they need to be I mean, is that still pretty time consuming for them?
Mark Rankin Litigation, unfortunately, is always going to be somewhat time consuming for the party. Unfortunately, we weren't present when the contract was formed, or when the services were provided. So we do need some input from the member. But we do try to minimise that as much as possible, and get the process moving for them. And how long does it take to recover is a difficult one to answer because it all depends on the debtors approach. We do still see quite a few who bury their head in the sand. But equally, we get a few who, as soon as they receive a letter from us by email, they'll respond immediately saying, Oh, my gosh, I'm so sorry, I overlooked this or I don't want you to follow through with with what you said, will be the next steps kind of how can I pay, and we get paid the same day very often. But the average length of time, I think is just over two months - 65 days at the moment is the current average.
Jon Watkins Okay, and I understand you recently passed a pretty significant milestone in terms of debt recovery. Can you just share a bit of detail about that?
Mark Rankin Yeah, we did. So we were delighted to in March to pass the 2 million pounds worth of debts that we've recovered through Markel Law. Since the service launched in June 2020. We've seen the figures go up year on year. So the first year, there was a lot of uptake on the self-serve, on the guides and the template letters, but not so much on the instructions by Markel Law. But I think over time, and certainly in recent months, and we've seen a real expansion in that area, there's far more instructions coming through. And we're you know, we've got a new workflow in place, which really helps to speed up the process as well for members. So if any members are out there who've tried the service, when it was first launched, there is a degree more of more automation at our end, which means that we can keep their members updated a lot quicker, we also chase them down the debtors a lot quicker as well, in terms of following that when the deadlines pass and that sort of thing. So we're starting to see that there's that it's making a real difference in the recoveries as well. So we've we've hit this 2 million now, but actually, we're well on track for making a million, in that, recovering a million for members in the last 12 months. So you know, going forward, I'm hoping to see that figure creep up. And I don't think the 2 million actually reflects quite what value it is providing to members because that's only the stuff where Markel Law have been instructed. What we struggled to capture is the recoveries that are made by members themselves, who are using the self serve letters. So you know, we recognise that with money being tight, not everyone wants to be paying for a lawyer to do this. So that's why we give them the self serve option as well. It doesn't carry as much weight in terms of it coming from Markel Law, but it ticks all the same boxes in terms of whether it complies with what the court requires. So it's certainly no more diluted in that sense. And I do feel that, you know, the actual figure that the debt recovery service as a whole is probably recovered for members is going to be more than double the 2 million pounds that are coming through the Markel Law instruction. So we're really, really proud to be helping the FSB to help its members to try to mitigate as best we can. The late payment issues.
Jon Watkins Yeah, some really impressive numbers around recovery. Prevention is always better than cure. There's some simple steps that firms can take to enhance their chances of getting paid in the first place, and then hopefully not having to use that recovery service.
Mark Rankin Yeah, and this has always as you say, you know that is the best cure isn't it, is the prevention and looking at what processes you've got in place to avoid it happening. I mean, it's something that I'm always asked and that there were some very basic things that when you say them out loud, sounds self explanatory. But you know, in the cut and thrust of business, when everyone's trying to make money as quickly as they can and move things forward and you think you see an opportunity, you don't necessarily step back and think about it. But I think the key ones for me are to just ensure that you've got some sort of written basis on which you're engaging. Whilst legally speaking, you don't need to have a written contract to enforce the terms, it's so much easier if you have got something we can point to in writing in black and white, where there's no ambiguity as to what service has been provided, what the payment terms were. What the expectations were for both parties; so it's always worth trying to get something in writing before you start, it doesn't have to be a formal standalone contract. And ideally, it would be, but it really doesn't have to be - a simple exchange of emails where the member says, This is what I'm going to be doing for you. And this is when you're going to pay and how much you're going to pay that is infinitely better than than having to argue over who said what and when judges find it very difficult to decipher which version of events is perhaps the one that that they want to accept. And it's very hard for us as lawyers to advise on which version of events will be accepted by a judge until you get into the court. And you see the whites of the judges eyes. And you know, they do, they are only people at the end of the day, and they do take against certain people for whatever reason. So it just avoids that ambiguity altogether. And I think that it's just important to just get something down before you start working. Now, that will be my main takeaway really. And then also, to follow up, when there is a late payment issue, don't ignore it, make sure that you are engaging as the creditor, so ask the debtor as to why they haven't paid? Are there any reasons? Is it a habitual thing, should you be withdrawing any lines of credit you've got with them if you know to try to incentivise, or are they paying other creditors not you? And then making sure that if you do need to assert your rights, you know what those rights are. So let's refer to earlier - the guides on the legal hub will help with that. And then if you do want to take it to a law firm, take it legal, that that you do so within a reasonable time, I think at the moment, our average age of debt, by the time it comes to us is something like 260 days. So you think about that, that's what, seven, eight months, eight months, it's been sad. Looking at the the member, if you get it to a sooner, the sooner we can look at recovering and it does get harder to recover debts, the longer it goes for a variety of reasons, people move on. People can find reasons to object or to raise issue with a service that they wouldn't have done at the if it had been paid immediately. So please do try to get things moving as quickly as you can, and notwithstanding the fact that does get harder to recover them after. As they get older, we have been able to recover over 100 debts already more than a year old. So certainly all is not lost. And you have a six year limitation period in which to pursue most of these claims for breach of contracts and the like. But the sooner you can get it moving the better.
Jon Watkins Right. And where can listeners find out a bit more information about the debt recovery service.
Mark Rankin So there's a dedicated section on the FSB legal hub. It's all in there. It's designed so that members can effectively click through they put something in their basket, they can purchase the service, and it'll come through to my team. And then we'll get a letter out within 24 to 48 hours of receiving all the relevant information. And the key there is just to you know, when we do come back to the members to make sure that we they give us the information we ask for. It's generally it's the contract, generally, it's any correspondence they've had, and copies of invoices, and we don't need much more than that to start with. But we just need something to be able to make that letter as powerful as possible to elicit payment as quickly as we can.
Jon Watkins That's really good. Thanks, Mark. That brings us to the end of this Small Business Round Up for me, and I'll look at the small business announcements in the headlines right now. And I'd like to once again, thank our guests, Alan and Mark, for joining. Thank you also to our audience for listening to the episode. While I have your attention, I would just like to remind you that you can subscribe to the FSB podcast to receive regular updates and guidance on the big issues affecting small businesses. And do please also remember that you can find a whole host of additional webinars, podcasts and other content at the FSB website at FSB.co.uk Many thanks for listening.
This episode is sponsored by Dell Technologies. Dell can help push your business further, with innovative technology designed for small business.
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