There’s silliness, idiocy and being an MP – that’s the conclusion to draw from these complaints about the payment practices at Patisserie Valerie. For the complaint currently is that they’ve been paying suppliers late. Hmm, OK. And what do we think happens in a company that suddenly finds out that it’s debt loaded, not cash rich as it had thought? Or, even, how do we think that misunderstanding arose? Obviously enough it’s because the financial director – at least as is being alleged here – wasn’t paying off debts that he was marking down as having paid.
That is, the very reason that Patisserie Valerie found itself in dire straits is exactly the whinge that MPs investigating said straits have. Instead of their recognising it for what it is, the cause.
An influential Commons committee has requested details of Patisserie Valerie’s payment practices with suppliers amid concerns about lengthy delays.
It’s not the payment practices fools, this isn’t something written down. This is the cause of the problem, that they’ve not been following their own written payment practices!
Patisserie Valerie and Stonebeach, a subsidiary, were challenged with at least four winding-up petitions in the High Court before the business revealed its financial crisis in October. The petitioners were HM Revenue & Customs, Dairy Crest, the listed food group, and Preston council. The scrutiny comes as The Times has also learnt of allegations of how Patisserie Valerie made late payments to some of its suppliers on multiple occasions. One small photography business was paid only this month after a two-year wait, while another supplier turned up at the company’s office with baseball bats, according to a source.
The emergence of a £40 million hole in its accounts led to the suspension of trading in its shares and the arrest of Chris Marsh, its chief financial officer. He has been placed on bail and is being investigated by the Serious Fraud Office. Mr Marsh resigned in October, while Paul May, the chief executive, did so last month. The company revealed in October that it was sitting on debts of £9.8 million rather than the cash position of £28.8 million it had reported in May.
So, how does this happen? Well, one allegation is that there were overdrafts that no one knew about. But that’s not really how this works. Here’s how it does.
So, there’s a bank account over there. With cash in it. And in the accounts there’s a list of the invoices that remain unpaid – accruals perhaps to the initiated? – and that’s great. We know, for example, that this week’s butter bill needs to be paid in two weeks’ time but not today. So, we’ve cash in the account, but that’s not really, really, cash as we know we’ve got to spend it in 2 week’s time. Well, yeah, OK, not really, but close enough.
So, the true health of the business is the cash in the account, minus the bills we’ve already received and know we’ve got to pay in a bit, but pay after the end of this accounting period.
So, now, how do you run a fraud in these accounts? Not that this happened at PV, heaven forfend, what did must wait for the inquiry and court cases. Well, what you do is have the FD sit on some vast pile of invoices that are either marked as paid in the accounts but cash hasn’t gone out, or even as never received. That means that we’ve that cash in the bank and a small pile of bills to pay in the future, without taking into account that £40 million of bills sitting under the FD’s cushion or down the back of his sofa.
Now take that one step further. We’ve a business which has, allegedly, just suffered this sort of problem. Vast debts no one knew about suddenly turn up, as they always do in such cases for eventually people do demand their cash. We’ve a £40 million problem of something that looks very like this type.
And you’re now going to inquire into payment policies? But the whole damn point is that some bugger somewhere hasn’t been following the payment policies laid out in the accounts! Or even in the law.
Yup, there’s silliness, idiocy and then there’re MPs. This is not an ascending progression.