By Dennise Williams, Staff ReporterMANUFACTURERS should seek to boost their operating efficiency, stated Aubyn Hill, managing director of the National Commercial Bank (NCB).
He was speaking at the Jamaica Manufacturing Association (JMA) monthly board of directors meeting at their 85a Duke Street headquarters last week.
Facing high operating costs, foreign competition and stiff international `trade barriers, he told manufacturers, "Efficiency is where you have control."
Manufacturers must strive not to become, "bankers to their buyers," he said. "Being a banker is our job and you should bring us into the trade process."
The bank can look at receivables, he said. "During the selling cycle you offer credit of 30 and 60 days.
If your trade credit is to good people, we can discount the paper to you. Thus giving you immediate cash for you to turn around in your business."
In a facility like this the bank discounts receivable on a case by case basis. According to Courtney Campbell, head of retail banking at NCB, the process is as follows, "the manufacturer would take their receivables to us and we then discount them, that is we pay a price less than face value. For example, if your receivables are J$100,000 then the bank would possibly give J$80,000."
The interest rates for this facility are in the mid-20s. Campbell explained that some of the requirements for business to access this facility are
The quality of debt in that the financial strength of the trade debtors must be taken into consideration.
Aging of receivables in that, "when we notice that people owe for longer than normal trade practices, we are not interested. We only want to deal with current debts."
The company itself. Three way credit arrangements involve NCB being the middleman in the buying and selling process. According to Hill in a subsequent interview, "we can work with buyers and sellers to provide capital. The buyer would get credit to purchase goods, say shoes, from a specific manufacturer. That manufacturer would then get funding from NCB to then manufacture those shoes." Again, this frees up capital and promotes efficiency.
In a later discussion with The Financial Gleaner, Campbell expounded on Hill's suggestion to the members of the JMA of "extracting equity from the invested capital in your firm." In essence, this involves selling a part of the ownership of your firm to the investing public. Said Campbell, "through Edward Gayle & Co., we can also help company's extract equity from their companies in two ways. First, through private placement (offer of shares to not more than 50 persons) and on a larger scale a public offer on the Jamaica Stock Exchange."
ADMONITION
And in tangent with this suggestion is the admonition to manufacturers and Jamaican firms on a whole to continuously reinvest in their business and re-tool their equipment so as not to lose their competitive edge. And NCB practices what they preach. Hill stated, "we reinvested C$25 million of profits earned last year back into Jamaica. We are committed to Jamaica." But Hill does not believe that firms should re-tool in a vacuum. Hill fully supports the promise made by Minister of Industry and Tourism, Aloun N'dombet-Assamba, to seek to "widen the accelerated depreciation programme" made at the same JMA function. Hill beseeched the manufacturers to, "please grab at this, it is very important. And make sure it ties training to machinery purchases. This means that every time I train a Jamaican, I can take it off my taxes. It can be used for the development of our people and give us the chance to compete. Structured right, you can get the Government to pay for staff training."
GREATER CLARIFICATION
At PriceWaterHouseCoopers , a leading international accounting firm with offices in Jamaica, The Financial Gleaner was given a greater clarification of what the accelerated depreciation programme offers. Said our contact in PWHC's tax department; "the purpose of depreciation is to recoup the allowable (by government standards) cost to invest in your business. A company would depreciate each year an amount from the initial cost of the assets and take it out of profits, which in turn lowers, the tax liability. With the accelerated depreciation, a firm would pay even less tax because the depreciation of an asset would occur even faster.
And while giving manufacturers suggestions that would boost their operating efficiency, and bring more business to NCB, Hill touched on the contentious issue of interest rates. In relation to this, Hill explained that manufacturers and the private sector on a whole couldn't have its cake and eat it to. "Don't raise your hands, but I would guess that all of you in here has a little money put away earning interest. Worse, I don't even get all of that money as other financial institutions, which pay higher rates, gets business as well. And what rate do you want to receive on your money? Think of the deposit rate you get now. That is the source of money I have to lend. The money lent to you is borrowed from depositors." And he stated that since Government is the largest borrower on the market, when they set rates at the current 22%, the commercial banks have no choice but to follow.
