Published by Credit Matters Pty Ltd.
Welcome to Credit Matters Newsletter for December 2014. Our monthly newsletter contains information about financial risk management issues, blogs, advice of new business listings and free advice from organisations such as ASIC.
You can always view past copies of our newsletters via our website at www.creditmatters.com.au
The format for the final newsletter edition for the year has changed once again. I have put forward a number of business factors observed in 2014 and then projected how these factors might affect your business in 2015.
Obviously, space will not allow a more in-depth discussion on these matters. However you are always welcome to contact me to discuss your ideas or to seek more information.
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If you are interested in reaching a wider group of business prospects, contact Kim to see what we can do for you. Whilst there are many different opportunities to advertise your business, we believe Credit Matters is one of the few opportunities to reach a dedicated marketplace of customers with financial risk management requirements.
There are a number of positive developments in the New Year for those of us interested in, and operating in the risk management environment. It appears there will be a renewed focus on due diligence and the dictates of Regulators and Legislators on knowing your customer, employee and supplier.
Not knowing in the future will not be an option.
Welcome to the last newsletter for 2014.
Hopefully you will have found our newsletter and the contents on our website of value in your business ventures during the year. We will continue to do better next year with new offerings as we seek to operate in what are almost certainly going to be interesting times ahead.
I hope you have had a successful year and 2015 will be even better.
Finally I wish you all a happy Christmas and New Year with your family and friends be a safe and enjoyable time
Watching business developments in 2014 has been another fascinating experience. My core observations as a financial risk management professional are as follows.
Globally - as we are now part of the global community, it is essential we do not neglect the affairs which we see overseas and which have an influence on our business.
There is little consensus on whether we are at the end of the GFC or starting to come out of it. A very few countries appear to be making progress, and the rest still have a large number of problems to solve.
In addition, a large amount of hidden debt remains and will continue to hinder growth for consumers, business, and countries. All countries are affected by this problem in a similar way.
Australia - is now in the same state as the global community. Whether we are doing well or not, is bound by our vested interests, perceptions and position in the marketplace.
The major issue ahead, will be the employment of the people who are about to lose their jobs in the manufacturing industries. What sort of work will be available for those employees with limited skill sets or a perceived age barrier to being retrained?
Banks and other major financial institutions - whether globally or in Australia, appear largely reluctant to support small and medium sized businesses. As a consequence, other lenders are trying to fill the void.
When people want money desperately, they often borrow indiscriminately. What sort of integrity will these new lenders have?
Business payment options - are increasing and new options such as Bitcoin which is the most obvious example, becoming available. There are many interesting options and developments ahead in this area. There are also risks, which do not always appear obvious at first.
A traditional payment option has always been credit cards. Unfortunately over recent years, it has become increasingly obvious a new trend of purchase fraud has immerged. The customer pays a debt by credit card, receives the goods or services, and then claims the credit card payment was not authorised.
Despite evidence showing the payment was authorised, value provided and further evidence showing a fraud is being perpetrated by the rejection notice, the credit card companies accept their customer's right to reverse the payment. It is then up to the supplier to recover the funds from the credit card holder.
Legislators and Regulators - are having an increasing negative influence on the ability of business enterprises to recover their debt in an efficient manner at a reasonable cost.
It would appear in the eyes of Legislators and Regulators, business people are no longer capable or need to be accountable for their commercial actions. We continue to note how caveat emptor (buyer beware) is no longer relevant and or the extra layers of costs imposed when an aggrieved business entity tries to enforce commercial contracts.
Business owners and managers - are increasingly using technology to reduce costs and create business efficiencies. However we also note when technology is introduced for the wrong reasons or the processes don't work, the opposite effect is true.
Another hidden cost has been the increasing dumbing down of employees, business owners and their managers. Too often we see business organisations employing people who lack any commercial nous or an understanding of how their work affects the financial viability of the organisations which employ them.
Another sign of the dumbing down of business people is seen in how many of which should know better, cannot recognise the difference between smart business strategies and fraudulent business strategies.
Creditworthiness - is less valued than previously as we note businesses continue to sell to even the most dubious of customers in order to make another sale. On the other side of ledger we see the deliberate slow paying of suppliers which risks financial reputation, merely to hang on to cash.
Without a doubt, business people now have a greater knowledge on how to avoid paying or to slow pay their accounts than they do on how to encourage the prompt payment of their own business accounts. Equally interesting, the same person that slow pays their suppliers' invoices, often illustrates they have little comprehension on how to encourage prompt payment from their own customers.
Two interesting facts were reported this year and are worth considering when extending credit.
Invoices over 90 days old were at greater risk than ever before. This reality is regularly reported by debt collectors and is based on historical fact. The older the invoice, the more likely it will end up as a bad debt.
A recent report indicated 16% of Britons applying for finance had no intention of repaying the debt. I would respectively suggest that statistic would be similar in all countries.
Organisational and Personnel Integrity - are relied upon by many in business and are one of the cornerstones by which we chose to do business with any given party.
Unfortunately, we have seen our trust broken again this year by the exposure of people and organisations we use to respect. It is though you almost cannot trust anybody any more.
Two reasons exist for this situation. They are (i) there are no secrets in the modern world and (ii) there is little respect for honest people in business. It seems many people are willing to do business with the devil and when caught out, simply say sorry and go do it again.
Social Media - has grown to the extent that it is now all invasive in our lives. No business or person can keep a secret anymore. Furthermore, reputations can be equally enhanced or destroyed on the whim of an individual, with or without evidence.
As mentioned in the introduction, 2014 has been an interesting year for financial risk management professionals.
PPS Alert: Improper registration of security interests (IRS) under the PPSA
The Register created under the Personal Property Securities Act 2009 (Cth) (PPSA) is normally used to register and protect the rights of secured creditors.
Would you like to know more?
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Every new year brings with it new ways of doing business. As a result, many new business practices will be forced on to us, whether we like it or not. There is no escaping the fact, if you wish to better in 2015, you will probably have to change your current business practices.
However, to make the right sort of changes, you will need to understand what might happen to your business.
Globally - there are a vast number of issues to consider in the short-term.
It now seems every country is starting to use their taxation authorities as de facto debt collectors. In addition, new taxation regulations are devised to raise additional revenue which then impacts negatively on business profits for overseas businesses trading with local businesses.
Many service providers for example are now finding their cashflow and profits are affected negatively by withholding tax deductions from different countries. Usually of course, you only find out about these new taxes after the invoice is short-paid.
Australia - is now facing serious problems of falling employment and the high rate of youth unemployment. In addition, there are many business organisations which are outsourcing their requirements to overseas service providers and increasing the numbers of unemployed skilled workers.
It is no coincidence then, consumer confidence is falling. It is also likely those people still employed may try to pay down debt rather than spend on consumer goods and services. In turn, this further affects consumer confidence as they see retail sales falling.
Banks and other major financial institutions - will probably continue to be reluctant to lend to small and medium sized businesses, except for a narrow range of costly products or when security is available.
If this situation continues, customers will continue to apply to their suppliers for credit terms and once granted, find ways to slow pay their obligations. It is not difficult to see why this state of affairs will become more prevalent. After all, the credit is usually free of interest and charges and any debt collection action is an excuse to extend terms further.
Furthermore, terms of trade where interest and costs are have been authorised by the customer in order to obtain credit, will often be found to be uncollectable.
Business payment options - will continue to increas. However with the rules constantly changing, business people will need to exercise care.
For instance there is little doubt credit card companies are not going to change their practices of acting for their customers in the short-term. Unless they are challenged by the big end of town or by Regulators, there is likely to be little assistance for the aggrieved supplier when their customers raise fraudulent claims and authorised payments are reversed.
Bitcoin will also continue to be an enigma, with many positive possibilities. Unfortunately there are also a number of challenges. In the main you have issues of storage, protection, retention of value and equally important, who is the end user of your Bitcoins.
Another problem for legitimate business users of Bitcoin is that Bitcoin is equally favoured by criminals as a payment method. Accordingly, you would not want your business caught up in a criminal investigation because a Bitcoin transaction can be traced backed to your business.
Legislators and Regulators - will continue to have a negative impact on businesses trying to legitimately recover their assets by legal action.
The main problems with these authorities are (i) the individuals in charge have rarely operated a business, (ii) feel the effect of their work, and (iii) are often reluctant to change their regulations and legislations.
Another main issue of course is that the Regulators and Legislators have the best of intentions. However as the evidence increasingly shows, perpetrators of crime are the main beneficiaries and the innocent, are the real victims.
Business owners and managers - using technology to reduce costs and create business efficiencies will continue. The implementation of technology inappropriately, will however continue to haunt business decision makers.
I suggest the use of the telephone may well return to be a key business advantage to your business in 2015. After all, the cost of telephone calls is coming down all the time. Email is not always the best option it is made out to be. There are times when you just have to pick up the telephone to resolve the problem.
Of course this then raises the question; "Do you still have access to the staff who know how to talk with your suppliers and customers in a professional manner?"
In the business media, we continue to hear how you need smart people to run a smart business. Unfortunately with the use of technology, many business processes only need people with limited business skills. The loss of intellectual capital and business knowledge within the business continues to fall and so the art of doing business is gradually lost.
The results of this trend will increasingly catch business owners and managers out as is already happening. Reputations are trashed by bad decision making. Also those who want to steal your business assets will continue to do with increasing ease.
Creditworthiness - is a double edged sword these days. Previously your reputation was one of the keys to running a business. This reality is increasingly misunderstood. We see therefore decisions made to push the boundaries of respectability and creditability in order to make a few extra bucks.
If such efforts are successful once or twice, many people will believe they can act this way with impunity. What happens of course, in their arrogance, they push the boundaries too hard one more time, and then it all comes crashing down around them.
It is becoming more obvious it may be time to consider changes to your business model. Too often we see the most liquid assets of your business being exposed to loss due to the lack of business smarts, the avoidance of tough decisions and an increased awareness of how to steal these assets.
My experience suggests a specialist manager is required to protect the business's working capital. The world has changed and has become increasingly complex on many levels. However many business managers are no longer in tune with the real business world or the level of complexity involved. Consequently the need to have a specialist manager in charge of working capital is becoming increasingly important.
Organisational and Personnel Integrity - has been and always will be one of the key reasons other parties will want do business with you.
A respected reputation is worth dollars in sales, cashflow and profits and as such, needs to be protected. A lost reputation always results in lost dollars.
Social Media - is a factor at all levels of business today. Ignore how it is used to sell or destroy your business at your peril.
Summary - 2015 is another year of business. As always there will be threats and opportunities.
Working to yesterday's rules is vital in protecting the assets of your business, cash, and reputation. Employing the best people possible and customers that pay in a timely manner plus reliable suppliers are essential. It is these factors which assist in the longevity of a profitable business.
The rules for doing business have changed because of (i) new business ideas, (ii) new technology, the changing attitudes of people and their ability to steal from you, (iii) the imposts of Regulators and Legislators, and the invasiveness of social media etc. These are the intangible factors many business people fail to comprehend or allow for in their business affairs.
All the best for your business endeavours in 2015.
News From ASIC - Help with ASIC online services
Are you registering, renewing or cancelling a business name? Check out ASIC's new series of YouTube videos to help you use its business names register and other online services.
ASIC has a new look website. The new site is designed to be easy to use and mobile responsive, with an improved search function. Visit www.asic.gov.au
A free smartphone app developed by the Australian Securities and Investments Commission (ASIC) will help business owners undertake important checks before they enter into business transactions with other organisations.
For more information ASIC APP INFORMATION
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