The Financial Obstacles Facing SMEs - Some Hope From the FCA?
SMEs form the economic backbone of almost every economy in the world.
In the UK, a company is defined as being an SME if it meets two out of three criteria: it has a turnover of less than £25m, it has fewer than 250 employees, it has gross assets of less than £12.5m.
The Department for Business Innovation and Skills has estimated that 99.3% of UK private sector businesses were SMEs, with their £1.6 trillion annual turnover accounting for 47% of private sector turnover.
Despite their self-evident value to the UK economy, SMEs face huge financial challenges, and successive Governments have failed to adequately address these.
The major challenges are:
- Cash Flow, in other words delayed payment for services and/or goods supplied in good faith under contract; and
- An SME’s relationship with its Bank; and
- Recourse to a legal remedy.
Looking at these in turn:
- Delayed, or even no payment, is a fact of life for many SMEs and can restrict growth, or even cause voluntary or involuntary liquidation.
- Most SMEs have an uneasy relationship with their Bank, the playing field is uneven, to put it mildly. This makes it hard for them to e.g. “carry on” whilst being forced to wait for payment. In some cases, the Bank might “move the goalposts” (Remember the RBS “GRG” scandal which horrified the House of Commons Treasury Select Committee to such an extent that it forced the publication of the Financial Conduct Authority’s investigation)? https://www.parliament.uk/business/committees/committees-a-z/commons-select/treasury-committee/news-parliament-2017/rbs-global-restructuring-group-s166-report-17-19/ The Committee’s Chair, Mrs Morgan commented: “We have today published the terms of reference for our inquiry into SME finance. We’ll examine what must change to prevent what occurred at GRG from ever happening again, and how to restore confidence among SMEs in banks as a source of finance.”
- Until recently, there were few practical remedies available to SMEs: Arbitration (which has not proved either quick or successful), or Court Proceedings (which can be expensive, risky and suck valuable management time out of the business).
So, has anything changed to help the SMEs? Well, a little.
The FCA has announced that the Financial Ombudsman Service will, from 1 April 2019, be able to entertain complaints from many more SMEs than so far (an additional 210,000 according to the FCA), and award higher levels of compensation which will keep pace with inflation. https://www.fca.org.uk/news/press-releases/fca-confirms-increase-financial-ombudsman-service-award-limit
However, the FOS remains an organisation set up to help consumers, not companies. Also, this “improvement” will only help SMEs which have a complaint about the way they have been treated by their Bank. So, it goes some way to address point “2” above, but not “1” or “3”.
If you are an SME and have any of the problems referred to here, then we should love to hear from you. We can offer a no obligation initial consultation and have plenty of experience in this area. We are also cost effective and fast.
House of Cards?
Every one of the 3,000 law firms accredited under the Law Society’s Conveyancing Quality Scheme (CQS) must now remove that marketing “badge” from all their material, following criticism from the Advertising Standards Authority ("ASA").
This is how The Law Society described the Scheme:
“The Law Society's Conveyancing Quality Scheme (CQS) provides a recognised quality standard for residential conveyancing practices. Membership establishes a level of credibility for firms with stakeholders such as regulators, lenders and insurers as well as residential homebuyers and sellers.
Since inception in 2011, the CQS has created a trusted community which has helped year on year to deter fraud and continually improve standards across the residential conveyancing sector.”
Most mortgage lenders have insisted that solicitors who want to be on their Panels must be members of the Scheme.
The Law Society has claimed that, to be a member, a solicitors’ firm has undergone “rigorous examination and testing to demonstrate that they have a high level of knowledge, skills, experience and practice”.
The ASA said that this was an exaggeration, given the checks that a firm must undergo to receive the Law Society’s approval. The checks are minimal – but the fees levied by The Law Society on applicants, have been “a nice little earner”. Here is the official Law Society Statement showing how firms must pay to be “accredited”:
Initial assessment and re-accreditation for the Conveyancing Quality Scheme includes an annual application and membership fee. Please do not make payment when submitting your application. On receipt of your application, the amount payable will be determined and an invoice will be sent to the individual applying for accreditation.
Application fees for initial accreditation are based on the number of partners at the practice.
And guess who ultimately foots the bill? Well you, the consumer, of course.
The Law Society emailed all CQS members to inform them of the ruling and the need to change their marketing if they repeated the claim.
The Society is also reviewing its marketing for other schemes – its family law accreditation scheme, for example, uses almost exactly the same wording, saying: “Members will have shown that they have and will maintain a high level of knowledge, skills, experience and practice in the area of family law.”
As the fees payable for these “accreditations” are removed will the consumer see a corresponding fall in solicitors’ fees? I wonder…
© November 2017 Hannen Beith