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Times are changing

Transcript of an article which appeared in September's Niche Commercial Finance magazine.

A year ago Close Invoice Finance didn't have the best reputation amongst commercial finance brokers but now the company is undergoing a major transformation with David Thomson at the helm. He talked to Tamsin Hemsley about the difficult decisions he has had to make over the past year and future plans for the business

Ask any commercial finance broker a year ago what their thoughts were on Close Invoice Finance and you would have been likely to get a rather non-plussed reply. Many brokers would have told you that although they respected the Close brand, as part of merchant bank, Close Brothers, the company wasn't usually their first port of call when looking to place business, as it simply didn't accept broker enquiries with open arms. And not only that, many industry watchers may have told you that the Close brand, although highly thought of, was not known for its innovation in the marketplace.

But how times are changing. Now, almost one year after David Thomson became chief executive of the company, overseeing an overhaul which has transformed the business, Close Invoice Finance is close to completing its transformation as an up-to-date organisation with innovative products and a young and dynamic management team behind it.

Thomson is the first to admit that the past year has not been easy. "When you start to bring change management into any business, it's always a slow burn. What we have effectively done is 'shock-treat' the business, changing the board structure, repositioning the senior management teams, knocking down the barriers and making everything inter-related right across the brand."

Part of this shock treatment has been a three-year plan which Thomson has delivered to all employees encompassing all aspects of the business. "Every single member of the company now has a copy of the plan, so everyone knows where we are going and because we are sharing this message with staff, this has helped to calm any sense of shock," he says.

Working to reposition Close Invoice Finance has been a long and at times, difficult journey, for Thomson, but then he is no stranger to the uncomfortable side of business. After becoming managing director of South-African owned Metropolitan Factors in 1997. He inherited a turbulent organisation which was still reeling after the previous management team led by Jeff Longhurst had left to set up Independent Growth Finance (IGF) taking the large clients with them. Thomson, realising that this was a golden opportunity to make his own personal mark in the industry, said that he wanted a 10% stake in the business and an agreement that he could develop the company.

Within five years Metropolitan had began to make a substantial profit and funding had started coming from traditional bank funding facilities rather than South Africa. And in 2000, Thomson's hard work was rewarded, Metropolitan won the Sussex small business award. In many ways the changes that Thomson had to make at Metropolitan are now being replicated at Close Invoice Finance. "We had to get rid of an old management team who were out of touch with reality and we also had to reposition and rebrand the business." He says. "It was hard, gritty, painful stuff."

The decision to sell Metroplitan to Close Invoice Finance wasn't an easy one for Thomson, but that he had to be realistic about the future. "I had to ask myself, how far can I really take an independent factoring company? I had to think about the future of the business and how the bank funding lines would eventually have dried up. You have to pick a moment and then you have to move on."

The sale gave Thomson, as a shareholder, a degree of financial stability whilst allowing him to run a subsidiary of Close Invoice Finance. This allowed Metropolitan to take advantage of the funding and branding of a large merchant bank whilst retaining its autonomy. Thomson became a director of Close Invoice Finance, but also retained his status as managing director of Metropolitan which was run separately.

"There were huge benefits to being part of Close Brothers. All of their subsidiary businesses are autonomous and the way that they are run, developed and managed is very much down to the chief executive and the board," he says.

Thomson eventually took over the role of chief executive of Close Invoice Finance at the end of 2003, replacing Leslie Bland who was retained to do a number of other jobs within the Close group and was there to provide advice to Thomson if he was needed.

When Thomson took over Close, the company consisted of four businesses ­ Metropolitan Factors, and Close Invoice Finance in Brighton, Newbury and the recently opened office in Manchester. Thomson's first priority was to change the business so it was one unit, rather than four "If you looked at the way we processed and managed these businesses, all of them were totally different and yet they were one company," he says. "There was also the issue that although Metropolitan had a brand reputation, in essence, it was still competing for the same business as Close Invoice Finance."

After considering how Metropolitan should fit into the Close structure for the future, Thomson felt that there was not a significant enough niche to continue to run Metropolitan as a separate brand, and so took the decision to close the Haywards Heath based business. The Metropolitan brand was retained in the launch of a small business product offering called MetroCash, and the Metropolitan staff were offered employment in Brighton.

"Obviously it was a very sad day for us to lose that separate identity. Metropolitan had a family atmosphere - everybody knew each other very well and the clients loved that kind of atmosphere," Thomson says.

"And from a personal point of view, it was a hugely stressful experience because I had this mixed loyalty - I had loyalty as chief executive to all the offices under the Close Invoice Finance name, but I also had a huge historic commitment to the people at Metropolitan and what the business represented. However, we were as fair as we could be and those that did decide to leave were well remunerated."

Thomson also says that the merging of the brands was difficult because of the cultural differences between the two companies. "This was a new Southern operation which represented the merging of two separate businesses with very diverse cultures. There was a lot of initial pain behind a more relaxed style and a more procedurely driven Close Invoice Finance, and you can imagine some of the conflicts that took place originally."

Part of Thomson's 'one culture' agenda was to knock down the barriers between the regional Close offices, making employees feel that they were just working for one company. "You had issues around one regional office being more invoice discounting led than another, you had sales people bickering over patches and whether business went to Newbury or to Brighton and you had different marketing initiatives in different regions," he says.

Thomson is refreshingly honest about the obstacles he has had to face to establish his vision of 'one culture'. "We had three dispirate managing directors who would feel that they were competing against each other, so you would feel more comfortable about one office having a bad month, if it meant you had a good month."

He decided that the only way to establish a 'one company' culture was to opt for a functional board structure rather than a regional one, including a director of sales and marketing, director of operations, director of finance, director of IT and strategy and a director of Manchester. "The idea was that we would no longer be doing things differently in different offices because all directors were functionally responsible. In one fail swoop it passed on a clear message to everyone; that no longer were we going to be these four independent companies operating separately."

To take the business forward, Thomson had to look back at the performance of Close and one thing was certain: Close Invoice Finance's reputation with the broker community was pretty poor. "We had not really helped ourselves with some brokers, by saying that we were not interested in small businesses or anything over £2million, so that takes away all the tiny start-ups and a large proportion of the SME market. We had also not been very risk averse which perhaps had left some brokers a little flat towards us."

So what other perceptions did the marketplace have about Close? Thomson says that the general view was: good people, excellent products, very few client complaints, but there was a general view that the company wasn't very innovative and could be pedantic about the size of the deal it wanted to do. The good news was that from a purely financial point of view, Close had met all of its targets over the years and was seen by the group as being a real jewell in the crown, in that it consistently met its objectives.

"In many ways, my job was quite easy in that we were meeting all our financial objectives," he says. "However, where we did need to change was in our culture and image perception and also take a closer look at the products and services we provided. We also needed to ensure that we were delivering a consistent marketing message to both brokers and clients."

As well as a business plan, Thomson decided that one way of developing a 'one culture' business was to develop a message that all employees could buy into. The management team decided on 'hassle-free finance' which became the company's new philosophy. "That one phrase should underpin everything we do and be the message to the broker market. I want all our staff to question procedures, with this message in mind. If a procedure is not designed to give a client 'hassle-free cash flow, then we shouldn't be doing it."

For the future, there are some aggressive targets for Close Invoice Finance to meet. It intends to grow its total income by 25% over the next three years and increase profit by 50%. Thomson says that in order to achieve these targets. It is keen to maximise cash out to clients without ignoring its risk policy. Close also wants to highlight to brokers and clients the importance of credit insurance. "We have a fantastic record with our credit insurers that means we can offer competitively priced credit protection that can be bolted on to any product they want. A client can also adapt the product so if covers their biggest exposures," says Thomson.

The plan is to be able to offer an innovative approach to products encompassing the life cycle of a client. Thomson says the priority is to have a product that meets all of a company's developmental stages. And the goal is for Close to be more innovative and less risk averse than ever before. "We are very close to rolling out an invoice discounting product to more 'high-risk' customers who would usually only be suitable for factoring."

Thomson believes that there is a definite demand in the marketplace for this type of product. "It will give us a risk profile from a management perspective of a factoring product, but because of controls we can now put in place through technology and the internet, we can roll out the product to companies which historically would not be suitable for invoice discounting."

Thomson also reveals that Close will also be launching a number of additional services to clients that will complement and further cement their existing relationships with the company. He hints that these products may include export and import facilities. "We already have a small factoring company in Germany which has proven to be very successful. So we are certainly looking to expand into European markets."

Thomson also says that complimentary services, such as website design, pay-roll and credit card facilities will be explored. And Close is also considering adding turnaround products and trade finance to its portfolio.

"We are going to take a very niche approach to our marketing activity - it's going to be very focussed, very developed and very determined. We are investing significantly in our people and developing a team that has bought into the philosophy and bought into the plan."


Thomson says that another priority is to increase the penetration of CloseNet - the conduit which the client can use through the internet linking him to his Close facility. The plan is to provide everything the client could want online, including requesting credit limits and posting their own invoices. "We are investing in a number of joint ventures to develop this even further," reveals Thomson.

Another priority is to market Metrocash, a product entirely focussed on small businesses, advancing 95%, and in some cases, 100% of the company's sales ledger. The client also has access to the Closenet service allowing the customer to chase his debtors while Close continues to manage the allocation side of the ledger and keep tabs on his activities. A quasi CHOC's facility (Client Handles Own Collections), the charge is fixed at 1% of turnover and the finance charge is 2.5% over bank base rate.

"I accept that this product is not going to make me a lot of money, but what it is going to enable me to do is show a broker that I can provide their client with a range of products that will be their customer base - from start-ups to businesses generating £3 million," he says. "Hopefully, we can then start to feed into other products, such as factoring and invoice discounting."

For Thomson, perhaps the culmination of the Close journey is the realisation that there is little benefit in keeping the Metropolitan name alive. He says that clients have come to accept that they are now managed by Close Invoice Finance and the 'M' branding will eventually disappear before it starts to become a confusing marketing message.

Although perhaps nostalgic about the loss of the Metropolitan name, his optimism about the future of Close Invoice Finance is evident. "I admit that we were conservative in our credit approach and old fashioned in our outlook and feel, but we have streamlined our new business processes and re-energised our sales team," he says. "The average age of our directors is 42 and the mixed messages that have occurred historically are now a thing of the past."

As the interview draws to a close, I ask Thomson how he has personally felt over the past year, overseeing such massive changes in a well-established organisation. "People are very suspicious of change, they like to know the culture and the person they report to. It was hard to get things moving at first, it was like pushing a truck up a hill. Of course, there have been a number of people who have found the changes difficult, but we have got fantastic plans and a fantastic team and now we are moving."

It's also been a personal journey for Thomson, seeing the business that he invested all his efforts in - Metropolitan Factors ­ being acquired by a large corporation. Like Close employees, he has to deal with huge change, both personally and professionally. "There is no doubt that the cultural difference between running a small business and being a CEO of a larger business has involved a huge repositioning as myself as an individual and a recognition of the impact that I will have on staff and clients alike.

"I was an individual who was running a small business that was making money and winning awards. When I sold to Close, I had to change my reporting lines. I then decided for all the right reasons to dismantle Metropolitan. I have had to go through a lot of changes myself and it has been tough adjusting to a large company culture that hasn't seen change for quite some time. But it's been hugely rewarding and challenging."

He says that the proof that the three-year plan is working comes with the positive feedback he is receiving from staff and clients alike. "I have had a lot of positive feedback from our sales team who now feel supported. They feel that they have a clear identification about how they fit into our three-year plan. And those that were managers of their individual units will tell you that although the transition wasn't easy for them personally, and they faced the same challenges I did, they are now fully in tune with our future plans."

And what about those stalwarts who Thomson knew would be resistant to change? "A couple of them have come up to me after sailing days and said how good it felt to be working together. I'm sure there are still people out there who are unhappy that things are now not what they used to be, but we can't afford to stand still. The outgoing chief executive did a fantastic job for 21 years but it is now time to take that quantum step forward that allows us to move to a different plain."

After my interview with Thomson, we go to meet the photographer and Close Invoice Finance's PR consultant. Rather than stick to conventional business shots, we decide to take some pictures of Thomson in front of the company car, a Smart Car which employees can use and also has the company's new philosophy plastered across it: 'hassle-free finance'. Seeing an opportunity, our photographer asks Thomson to take off his jacket and clamber on top of the roof of the car. I hold my breath, many chief executives might think this request is perhaps a touch undignified, but with a smile, Thomson duly obliges.

Developing new products, embracing brokers, and clambering on car roofs in the spirit of public relations, With Thomson at the helm, Close Invoice Finance has certainly come a long way in the past year. But one senses that the journey is only just beginning.

www.ncfonline.co.uk


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