Credit Matters Newsletters

Credit Matters is a financial risk management resource centre for the Australian business community. If you are in business, Credit Matters is your ideal source of financial risk management solutions.

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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.