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When Management’s Eyes are Wide Shut – The Mice Come Out to Play.

Kim Radok05 July 2018

The theme of this month’s blog is all about management teams understanding their business by comprehending what their reports and the events surrounding their business are telling them. Unfortunately, it seems there are management teams today which are taking an “eyes wide shut” to any of these factors which may have negative repercussions for their business.

Of particular concern is the lack of focus on business liabilities and on managing the B2B credit processes and cashflow protection functions.

When studying management’s actions these days the emphasis seems to be:

  1. on sales at any cost;

  2. sack or retrench “knowledge workers” and utilise technology;

  3. protection of directors’ reputations;

  4. paying cheaply as possible for business inputs irrespective of the later costs;

  5. paying dividends

  6. slow paying of suppliers, etc

As a result of the above, efficiency, future costs and a customer or supplier friendly ethos are often sacrificed.

The above factors are surprising when there is plenty of evidence to suggest that many people these days seem to be no longer embarrassed by their own incompetence, look to blame others and refuse to accept responsibility for their actions.

In addition, we are now operating in a pre-recession period, irrespective of whether that be in 6, 12 or 24 months. How do we know this factor should be considered? History shows us that we are due for another recession in the near future, in every recession, there are always many dollars lost, often needlessly.

In view of the above circumstances, it is surprising to see how infrequently management initiates proactive action to ensure all invoices are paid promptly. After all, following up on outstanding invoices reduces the potential loss of profits from slow paying customers and increases availability of cash.

In addition, the causes of credit claims and slow paying customers can be quickly identified and actions commenced to reduce the reoccurrence and negative costs of these factors. For instance, every outstanding dollar in the Debtors Ledger is either (i) your cash in your customer’s account, and/or (ii) a credit claim caused by operational inefficiency and using up precious cash for no positive result.

The fact is, a business without cash is not a business. If you understand this fact, then protecting cash with dollar-cheap employees and minimum resources, just does not make sense. When Receivables and Payables are under resourced, it is not unusual to find a business with messy Debtors and/or Creditors Ledgers. As all risk managers will testify, a messy Debtors or Creditors Ledger is a fraudsters delight.

As we are now in a pre-recession period, an emphasis on being customer and supplier friendly, is paramount. The major reasons for this emphasis is:

  1. to maximise sales opportunities;

  2. to maximise cashflow and reduce expenses;

  3. have the money in your bank account before your customer(s) go out of business or disappear;

  4. if a recession does occur, to avoid preferential payment claims from insolvency administrators; or

  5. in the case of a recession, be denied credit or supplier deals because your business was not customer or supplier friendly.

When management teams review their business reports and environment with “eyes wide shut” the mice will come out to play. Business today, shows us there is a different social and business ethos in operation. For instance, people are now not embarrassed about their business incompetence, are ready to blame others for their problems and refuse to accept responsibility for their actions.

You can avoid seeing reality, but you can not avoid reality. It is the wise management team therefore, which keeps its eyes open to all negatives and acts on such negatives to seek positive solutions. In today’s pre-recession world, such actions have never been so important.

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