Steve Coppard meets with Andrew Hignett, credit control manager at Johnson Tiles, in the Potteries’ heartland of Stoke-on-Trent. Established in 1901, Johnson Tiles is the UK's only large-scale manufacturer of ceramic tiles.
They discuss the overlap and similarities in business and personal debt, both involve people, their behaviours, attitudes, and biases. As business debt is managed by people it is possible to handle both similarly as people can choose to manage their business finances just as they manage their personal finances.
The conversation also raises questions such as – What can be done to help people manage better personally and professionally? How can we educate people about money and debt? Should payment terms be standardised further? How can businesses use Know Your Customer to help deal with their debtors?

Hello and welcome to this podcast brought to you by Just, the UK's first enforcement market integrator, and Arum, which has been helping organizations to prevent and resolve problem debt for over 25 years, with me, your host Steve Coppard.

In this series, we'll be shining a light on issues that impact the debt industry by discussing topics as diverse as numeracy, illegal money lending and behavioural insights.

It's time to grab a cuppa as we give Credit Where Credit's Due to our expert guests.

For this episode I visited the UK's only large-scale manufacturer of ceramic tiles in the potteries heartland of Stoke-on-Trent.

Johnson Tiles has been in business since 1901.

It truly is a jewel in the crown of British manufacturing history.

And this may seem like a strange place to visit to record a podcast about debt, but I'd previously met the company's credit controller Andy Hignett, in his capacity as the regional representative of the Chartered Institute of Credit Management, when he invited me to give a talk on the psychology of debt, a subject that we're both fascinated by.

And as we continued chatting over the months, it became clear that business-to-business debt and individual debt share some striking similarities.

This is largely because both involve people and their behaviours, attitudes and biases.

So let's dive straight into the interview and find out more about Andy's expertise and experience in this area.

Welcome to the podcast I'm here with Andy.

Andy I should let you introduce yourself and we'll talk maybe a little bit as well about how we know each other.

Yeah my name is Andre Hignett I'm the credit control manager here at Johnson & Tiles in Stoke-on-Trent, and also the regional representative for the CICM for the West Midlands area.

You and I share an interest in the psychology of debt.

Yeah, the psychology of debt has struck me over the 20-odd years that I've been within credit management field across different industries, different sectors, but increasingly the psychology of debt and how people handle it or don't handle it is paramountly important.

1 of the things that I was really interested in when we first spoke, Andy, is I don't do much with business to business debt, much more on personal debt.

And so to speak to you about actually some of the behaviours and drivers underneath business to business debt seem to come from the same place as personal debt?

Over the years I've seen businesses with lots of policies and procedures in place which is necessary and great.

But when those policies and procedures are influenced by individuals and individuals' characteristics in the way that they think and handle debt and finance, then that starts to skew the relationship within business-to-business finance, as it will in personal finance.

Some of the attitudes have been literally from my first job of being given a pile of invoices to process for payment, but not being told to process them for payment, but physically being said, here's some invoices, find reasons not to pay them.

That's quite outrageous really as well, isn't it?

Coming from a financial controller of an organisation that I was employed by, it's like, really?

we do it the prompt payment code these days, getting the bills paid on time is absolutely critical.

Yeah and lots of company processors and things that I've mentioned will have the ability to pay people on time, providing all those invoices tick lots of boxes in their policies and procedures.

As soon as you get to a stage where it can't process it, there's no purchase order number, there's no reference that the purchaser has requested, then it stops.

Not necessarily always out of the desire to stop payment or prevent payment, but because the system doesn't prevent that.

I was looking recently at both the small business commissioner and the chief exec of the charter's chief credit management, Sue Chapel, they've both been quite vocal about business to business debt and the prompt payment code.

And 1 of them went as far to say, I won't tell you which 1 you can go and find out.

But 1 of them said that a customer who doesn't pay you is not a customer, they're a thief.

And I thought well that's really quite punchy and I was quite pleased that they put it in those terms.

I suppose by definition anyone who doesn't pay a debt that is owned without any query then by definition that is a theft.

They've taken goods or services and not paid for in the same way that someone you know breaking into your home and taking something that doesn't belong to them that's not theirs until it's paid for.

That, I suppose, does stem from the ancient look on debt, going right back to the Romans and Greeks, that a debtor who doesn't pay is a thief and is treated accordingly.

Because obviously in your business, people have like, I guess, a credit limit, for example, there's an amount that you're willing to tolerate or extend to them a line of credit.

We always say, the Johnsons, that our credit limits, whatever they are, are at our discretion.

No matter what credit report we get for a particular company, it's at our discretion.

And I will soon find out, based on their behaviour and payment performance, whether they're worthy of that credit limit that I've extended to them or whether they're not.

So I always give them that caveat right from the word go so they fully understand that this is not a right that they're entitled to.

I get quite a lot of customers say I've got credit limits of x tens of thousand pounds elsewhere.

I only think they're worth so much and if they prove me right or even detrimentally don't pay us on time then I would use that credit limit even further.

There's a correlation there isn't there with your credit card so you may have a £5, 000 limit but you still have to pay a minimum amount every month.

There does seem to be, rather a strange, I've not come across it in nearly 20 years, but now I'm finding more customers saying, well, I've got a credit limit of tens of thousands of pounds and you've put me on stop.

Yeah, because these other invoices are now overdue.

I'm not going to let you run up a £30, 000 credit limit, which might take you 3 months before you even start to pay it.

You've got to pay what's due, regardless of the limit.

It goes back to the underlying thinking, doesn't it, that there's an entitlement to run that up and not pay the invoice on time because there's a facility that's been extended.

Yeah we have a mixture of customers here of bigger corporations but also smaller one-man-band companies, customers that in all intents and purposes are self-employed.

They might be limited companies, but effectively, they are 1 person doing a job, might have a few contractors.

But they tend to think sometimes that debt is the same in business as it is in personal life.

I mean, I talk quite a lot about my sort of background.

I'm very much a down-the-pub-on-a-Friday-night sort of person and I drink with a trades people and often you see you know people coming in with their cash in their pocket from their week's work and is it business cash or is it personal cash because it's buying the beer and is that then is that make it a business expense or how do we account for that?

Because we're not getting receipts for each time.

Yeah, we find it difficult to judge sometimes whether someone's paying by a corporate credit card or a personal credit card.

Obviously, we can't charge for personal credit card transaction fees anymore, for a number of years now, but that clause didn't extend to business.

We can apply a fee for transactional charges and we do point out to them that putting £20, 000, £30, 000 on a corporate credit card is very expensive to us.

So we do sometimes say look enough's enough if you haven't got the cash and you must pay on a credit card.

If there's a corporate 1 then you're going to pay a fee.

We're finding that more and more now particularly with the not just the smaller customers A lot of them now are coming to me every month when they're due and saying, we haven't been paid.

We want to extend it, or we can pay it on credit card.

The number of credit card transactions that we get has probably trebled in the last few months.

So they've had a credit account, so they've taken credit from us, then they've had to pay it on a credit card.

So they're extending their debt even further.

How many other suppliers they're doing this to, who note, it's difficult to judge.

That feels like it introduces even more risk into the supply chain.

It's certainly more risk to us and the more that I see certain customers relying on credit cards every month, more questions I have is to their stability and whether they can fully fund their credit card and pay their bills.

Some of our debtors not only pay by credit card but their payments on credit card are starting to stretch even further.

So they're not even paying on time but paying by credit card.

Yeah, in a financial services setting you wouldn't really accept that, would you?

That would start waving red flags everywhere.

So what do you think the actual cost of failure is?

So failing to adhere to the prompt payment code, what's at stake?

The prompt payment code, I believe, is excellent and it should be there.

But I think rather than voluntary, it should be a standard that everyone has to apply to.

It's difficult when you can see the legitimate reason why business would say, I'm not going to sign up to that because I want to negotiate my own payment terms with suppliers.

And even our late payment regulations stipulate that.

It's based on what terms you've agreed with a customer and a supplier as to when something becomes overdue and when fees were applied.

But to have a prompt payment code of so many days I think it might be a bit too far because everyone's an optimist in business.

I'm gonna make money, this is a great opportunity, I want to do this and make a profit.

But when things start to slip and people can't pay, then that optimism starts to get a bit dragged out and then other people are going to lose out.

If a business goes under, then obviously there's going to be suppliers and employees that lose out.

We have probably 600 to 1, 000 active accounts at any 1 time.

And if a big 1 goes, we might have insurance that covers that.

But a lot of the small ones go, we might have insurance that will cover the small ones, but if you have 10, 20, 30 that all go under, all owing you a few thousand pounds here and there, then that's probably more than having 1 of your big customers go.

I tended I guess to think of the supply chain as quite linear, but I guess somebody the size of Johnson Tiles, you are more like a node in a network.

Yeah, I mean, especially having been here 120 odd years now, We've seen a lot of recessions over that century and we'll probably hopefully see a lot more, providing that we can carry on business, and I'm sure we will.

But it's all a balance, balance between sales, balance between purchasing, a balance between our customers being able to pay on time.

And as soon as that starts to get more fragmented and people aren't able to keep up with that payment process, with the agreement of whoever's supplying, then it starts to fall down.

And I do think that that communication needs to be up front.

There's an adage that I've heard before where it says it's easier to get, you know, to say sorry for something rather than to get an approval to do something.

I'd much rather customers come to me and say, I can't pay you on time this month, pay you the week later, okay, I'll work with you.

But if you just don't pay for a week, and then 2 weeks, then 3 weeks, and stop talking to

We see exactly the same in personal debt, where I think at the start there's a sense of optimism.

And of course, as the optimism wanes, there's the feeling of the loss of control.

And that tends to bring with it shame and guilt.

And that leads to the not engaging with the process.

I guess there's the bullish optimism of if I can just get the next sale, I can just get the next sale, then I can pay those bills and carry on.

But you're actually driving deeper and deeper into debt and potentially dragging more people down with you.

And you've got the risk in the supply chain of not really knowing how the directors and senior managers of a business are running that business.

Are they stretching themselves so thin that they're having to rely on payments from 1 particular contract to fill the obligations of another contract.

So they're never really catching up enough to be in a solvent position.

And that brings I guess into play know your customer, which again in the financial services world especially on the debt side is a critical factor to success.

And knowing your customer, it's not just knowing what entity you're dealing with.

It's knowing about them and how they operate and knowing their way of thinking, really, in how they work.

I won't name names, but there's certain customers that we have where I regularly see CCJs go against them.

They have CCJs, they have winding up petitions on a regular basis and obviously their credit report fluctuates like the wind, but they don't seem bothered.

They will take it right to the letter and then pay whatever they need to pay.

When I worked for the tax office, we had certain customers that would never pay it until they got a letter with a worthing address on the back.

And the reason was that's where our enforcement and insolvency service was.

And so people knew once they got the letter from worthing, that was the time that they had to pay.

I mean, I'm going back decades now, so it's obviously changed a lot.

But that was really what got us thinking about segmentation and differentiated treatment paths because once you can identify that cohort we just send them a letter from Wurvidge straight away.

And you skip all the other bits of the process because that's what's gonna prompt them to pay.

Yeah, with my customer base, I tend to operate on a bespoke basis.

I will treat them as I feel that they need to be treated.

If I've got a customer that always goes to the next level in terms of delaying and excuses, then I will treat them harsher and more promptly than someone who I know will pay, even if they are struggling from time to time.

I don't go through a strict letter process.

That's a lot of people probably hearing this will go, you know, going through a proper chain of letters for chasing debt.

Well, no, because as you said, customers, even companies will receive these and go, I'm stage 1, that's stage 2, I'll wait till stage 4 come along before I start paying.

Some of them will wait till stage 4 before they can look at the invoices.

And they might have the same financial controller that I had, but have been told, now you can look at it and see whether you can pay it or not.

It might be the desire or necessity for small businesses in terms of their cash flow.

So they will not part with the money until they absolutely have to because they've got so many people chasing.

Bigger organisations, I really don't know.

I don't understand why they would do that.

Again, some organisations might not have the finances Or it might be the individual, either a manager or senior person who thinks they're making a name for themselves by withholding payments to a certain degree, keeping that capital within the business as much as they possibly can.

I mean, Under the Companies Act, directors are obliged to act in the interests of the business.

And so acting in a way that potentially drives away your suppliers and or your clients is not going to be helpful, right?

But I've also seen 1 example, I remember, where having a debt build up, a customer then approach and say, what sort of settlement discount can I have for paying this all off now?

You've built up the debt, there is no settlement discount.

In fact, you've paid us many months late, and now you're asking for a settlement discount.

They want to just get that debt and move on.

Where debts were factored, where they were purchased, and maybe the whole debt book was factored at a price of 40% of the total value, then the companies that would end up pursuing that debt could afford to collect less because they've only paid 40% on average for the actual debt.

And so they would be full of final settlements.

And that you used to see an awful lot in the private debt market, in the personal debt market.

I wonder if there's that again that correlation of people doing in business what they also do in their personal life.

It may be and it may be that those individuals that are employed in those roles have had a previous career in a business which was a factoring business so they've got that thinking, that ethos.

In the same way that you know I brought ideas and ways of working into this role from other sectors and other industries that I've worked in before.

Some work, some don't and you very quickly realise you know why they don't in particular industries.

What sort of practical steps can we take to improve the situations you think?

We need to start having a conversation about debt which is not siloed into the different types of debt.

Personal debt, business debt, are we always beating big business in not paying their bills?

It's not always big business that's not paying their bills.

As I said we've got several hundred customers activating at any 1 time.

A lot of big businesses will pay me when I expect despite a few disputes here and there but they'll pay and now we have a plethora of smaller businesses, I can't predict accurately enough yet to say that all of these people are going to pay us on the name.

The list of overdues each month is getting longer and longer with smaller businesses.

Each 1 may be owing a few thousand pounds.

So obviously when you prioritise debt to chase, you're dealing with the bigger ones first.

customers of 5, 000 and less, then that's a sizable chunk of money, but I haven't got the time to deal with that.

So it's not always big business that's the culprit.

We need to look at debt generally and the way we think about it and stop looking at different ways to treat personal and business debt.

1 of the things that we take a lot of interest in, at both Aram and Just, is behavioural insights.

And we've been looking recently at the fast and slow thinking that people do.

So some is very irrational, very emotion driven and others is very considered.

But there was a paper that goes back a few years called Clouds make nerds look good.

And just as a very brief summary of it, it was effectively you could take 2 candidates for college applications, you go a week apart, on 1 day it's sunny and have exactly the same interview, exactly the same grades.

And then 1 goes a week later and it's cloudy.

And actually on cloudy days, admissions officers think more about the academic stats.

And on sunny days, they think more about sports.

But there's also all of the other stuff that goes on in that person's life.

They might just have had an argument with their partner.

They may have had a massive bill land and all of that stuff impacts and it's about how do you try and drive out the same decision in every case rather than allow all those factors to play into it and I think there's something around the behavioural insights based on people's individual lives affecting their decisions in business.

Absolutely and it's borne out certainly within our customer base, the number of individuals, directors of businesses that, 1 in particular I can think of which did go into administration, and from what I've seen on social media, he seemed to have spent a lot of money on fast cars and other activities.

Now, whether he was paying himself handsomely out of the business that went under or siphoning it from the business, who knows?

And we've seen even bigger businesses, going back to Carillion, where things were masked enough to fool auditors over a lengthy period of time.

Just trying to think again about how people can take practical steps.

Yes, and I think the interpretation of payment terms as well sometimes.

Again, going back to previous positions I've worked in, I try to say to salespeople that we prefer certain payment terms, X number of days.

I had 1 salesman come to me quite proud, I've achieved this, it's on the terms that you wanted, 60 days, whatever.

And when I looked at the contract, it was 60 days, end of the month, following the second month after delivery.

But the wording of it was quite spot on in terms of trying to extend it as much as possible.

There's also a few things you said today around knowing your customer and working together, finding solutions.

Those all featured really heavily in a behavioral insights report that Ofgem did about improving debt communications.

And it's that feeling of, I think there are 3 parts of the Mindspace framework that come into play here.

There's ego, reciprocity, and there's messenger.

And when you use terms like work together, find solutions, this makes you come across to that person as a better messenger.

You're not going in really hard and harsh at the first instance.

And in terms of reciprocity, it makes people want to generally, you know, not everybody, of course, but for most people, it makes them want to give back in the same way that you're treating them.

And the ego bit comes in because people generally try to do, or prefer to do things that make them feel good about themselves.

Yeah, when I'm dealing with overdue debts here I tend to set out my stall in my communication with customers by saying this is what's there, clearly point out that they're overdue, These are the agreed terms and set out options for them that they then have to choose.

1, they have to acknowledge the debt but also you know choose which option they want to go along.

Pay now, no penalty, or pay within a certain deadline but you're gonna be charged interest and fees.

Don't pay at all you'll get legal action and that'll be the end of your account on a credit term.

Put it in their court as to whether they believe that their business is viable enough to continue a working relationship and actually work with me or say you know what do you worst.

That takes me back to again there's the definition of insolvency which is if you cannot pay on demand a debt which is due with cash or assets, then you are insolvent.

a lot of businesses that are technically insolvent.

Yeah, coming out of COVID, there were probably a lot of businesses that on paper were insolvent.

Now whether they can recover that because some of the government schemes was another matter but again it's more risk into the supply chain.

You've got the way that the economy is going generally.

I mean, by nature of our business we're dealing with the construction industry and DIY.

So it's whether there is the appetite in the economy to have new builds.

Are we going to see a bit more of a crash?

Predictions out there are varied at the moment, so it's a wait and see game.

I wonder, I mean, just again thinking about the overlap between personal and business there, whether you're seeing any sort of impacts broadly of the cost of living on your customer base?

I know that some of the smaller ones, the one-man bands, are struggling and we've seen evidence of that and through people when we discuss the debt situation with them are saying, I just can't pay you at the moment, because of whatever in their personal life, you try and work with them the best you can.

I see no sense in throwing good money after bad.

If it's going to be a bad debt, it's a bad debt.

What's the sense of employing a solicitor or whatever to go the legal channel and just rack up more debts you're not gonna recover.

And to put that extra burden on a debtor is a difficult situation, even a business debtor.

I just don't see the sense unless you really have to, in which case you are looking at probably insolvency winding up situation rather than going through a CCJ.

We think exactly the same in the sort of the pure debt world about, and this is why know your customer is so important, but about making sure you take the right action at the right time.

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Johnson Tiles and B2B Debt Challenges