Credit Matters Newsletters

As mentioned in our November newsletter, the topic for our first Professional Development Award will be announced on our website at www.creditmatters.com.au on the 16th of January 2017. Registered Members of Credit Matters will receive an email on the same day.

Once you have read the topic outline, if you have any further questions, please contact me at kim@creditmatters.com.au and I will do my best to deal with any concerns you have with the Award.

Advertising via Credit Matters

If you are interested in reaching a wider group of business prospects, contact Kim to see what we can do for you. There are many different opportunities to advertise your business. The benefit of advertising with Credit Matters is we offer one of the few opportunities to reach a broad marketplace of customers with financial risk management issues.

Attached are flyers for (i) Credit Matters Professional Development Award, (ii) the AICM's training calendar for the first 6 months of 2017, (iii) a note from IBAC asking for contact if you sight evidence of corruption, and not just on the 9th of December, (iv) seminars in February offered by Enable Workplace consulting and (v) an introductory note by Jeff Hurst the new director of Trade Bureaux Australia.

Welcome to our last newsletter for 2016. What an interesting year it has been and I hope you have done well.

Credit Matters will be moving forward with new innovations in 2017. In 2016 we adapted to new ways of doing business, and will continue to adapt to changing circumstances in 2017. I implore you to consider the same. There is nothing stable or static about doing business in these modern times.

I anticipate 2017 will be a really good year with many possibilities to take advantage of and challenges to learn from to make you a better business professional or owner. May you all reach the end of 2017 with your business growing successfully.

On that note, I wish you all the best for a safe and happy Christmas and New Year with your family and friends.

2016 has turned out to be another fascinating year for the business community and risk managers. My core observations as a financial risk management professional follow.

Globally - the year of 2016 started in a mixed state of gloom or optimism depending on your situation and beliefs. Unfortunately, to some it appears the worst has happened and we are continuing to look at serious issues. For others, global volatility is exciting because it provides wonderful opportunities to earn a dollar.

As always, there will be winners and losers in a changing world, especially as a result of Brexit and the win of Trump. The world is now split between losers which supported Brexit and Clinton who have insisted Armageddon is around the corner. Meanwhile those which supported Bretix and Trump, insist there is hope and opportunities to succeed and move forward again.

I suggest once the noise ends, a degree of common sense and pragmatism will re-assert itself again. Politicians and business people will soon come to grips with the new reality and seek the best possible outcome as usual.

Then there is China, a conundrum in itself. Is it going to be business as usual or is it financially challenged as a number of commentators are suggesting? People are only guessing about possible outcomes because China has its own special way of doing business.

The mainstream global economists and business professionals who supported the status quo, suggested 2016 would see an improvement in economic conditions. The reality suggests at best, the world of business has stagnated. We also see about a third of the world is still at war and suffering the debilitating problems of political turmoil and or are fundamentally insolvent.

Equally disturbing are the continuing business scandals affecting the banks, large corporations and the people who manage these institutions. The continuing exposure of these scandals causes a further loss of confidence, leaving global citizens and business people wondering about the loss of business fairness and ethical behaviour.

Governments around the world continue to place restrictions on the global community with increased red tape, taxation surveillance, regulations and other measures. These interventions are designed to create a "fair" business environment and hopefully, reduce tax avoidance and unethical behaviour such as unfair business practices and bribery.

As history shows unfortunately, these Government interventions mostly disadvantages business people and organisations which attempt to operate legally and honestly. On the other hand, criminals and the less reputable continue to prosper as they have no intention of operating to Government wishes.

When Governments get the Legislative balance wrong, business people change their practices to suit the new circumstances. The perfect example of this situation is now many businesses no longer offer credit to consumers. Changes to various Acts relating to businesses selling on credit to consumers became so onerous, many businesses found it hard to make a profit.

With world business stagnating, I would suggest, reducing customers access to credit and business opportunities is not the desired outcome desired by Government. However, if Governments do not get their initiatives right, this may well happen.

Large amounts of debt still remain hidden but not out of mind. There is evidence showing debt in all forms has increased throughout 2016. Until this debt is cleared, countries and consumers alike, will find their capacity to spend restricted.

Australia - appeared to be in pretty good shape economically, despite the woes of the mining industry, concerns with the state of the Chinese economy, youth unemployment, drugs and gambling, and the number of people without a regular roof over the heads.

The events of 2016 suggest otherwise. The workers from the motor vehicle manufacturing industry and associated businesses, many of which are now unemployed, are of concern. Where will these employees end up is an issue because many will never work again.

As history shows, apart from the lucky few employees which will quickly obtain new jobs, many workers will wait months before they find another. For the majority of workers however, history shows there are three major outcomes.

(i)  A proportion of workers will become involved with criminal activity to survive.

(ii) Other ex-workers are likely to indulge in personal and socially destructive behaviour such as drug taking and gambling because of their loss of identity and self-worth.

(iii) Of the remaining workers, many will never work again or find meaningful jobs.

We see the evidence of these outcomes in the previous studies on what happens when industries close down. Inevitably, when large numbers of employees become unemployed there is an increase in criminal behaviour associated with theft, drugs, gambling, tobacco and fraud in the workplace.

Relying on China, could be another problem for Australia because. With an emphasis and so much effort focused on doing business with China, other areas of the world have been neglected. As a result, China is now one of Australia's largest trading partners. If there are substantial problems within the Chinese economy or with the US, Australia could suffer badly.

Furthermore, research shows that Australian households are the most indebted in the world. The evidence suggests sales are so bad in the retail sector, they have brought forward their Christmas and Boxing Day sales. In addition, never before have there been so many closed shops or spare spaces in shopping centres and available car spaces in traditional shopping times.

Then we see that their issues in the housing sector due to raise of interest rates in the US. People are already anticipating an increase in home loan interest rates, especially as the banks are not even waiting for the RBA to increase local rates.

These are all classical signs that the Australian community is not currently in a good place despite what many proponents would suggest.

Banks and other major financial institutions - continue to show that nothing seems to have changed very much. Apart from the isolated advertising campaign, the major banks appear reluctant to support micro and small business enterprises unless bricks and mortar security is provided.

As a result, desperate business owners may be forced to seek more expensive borrowing products from the banks, or alternate funding from non-bank lenders. Often, this last resort lending causes more harm than good, as there are often unforeseen traps with increased expenses and costs not fully publicised.

Business payment options - seem to be a dime a dozen these days with yet another state of the art payment option becoming available.

No one seems to know how stable or viable these payment options and their owners may be over the long-term. The truth is, not all these new business enterprises will be as stable or offer the same transactional security of the major banks.

The alternative payment and credit card organisations are starting to be more aware their policies regarding the dishonouring of authorised purchases and issues of doubtful payments, need to be addressed. A continual disregard of these issues will affect the take up of their payment services if these issues are ignored or not dealt with properly.

Also of concern is the cost of establishing a credit and debit card processing facility with the associated transaction costs. Whilst many businesses seem willing to accept these costs, others are not. Surprisingly, many businesses seem to survive and grow, despite not having these facilities.

Comments continue for the elimination of cash and /or the removal of notes of large denominations. It appears the advocates of this campaign still have not learnt anything from the past history of commerce and of human behaviour. For instance, at least in Australia, criminals prefer $50 notes and not $100 notes. This fact is in direct contrast to claims of the advocates of eliminating of notes with large denominations.

No system is completely fail safe or really prevents criminal behaviour. At the end of the day, if you eliminate cash, people will just create another form of transactional currency to take its place. It is not as though there is no recent evidence of a new form of commerce being used e.g. Bitcoin. Unfortunately for Governments and mainstream business entities, Bitcoin is the preferred payment method of choice for criminals.

In addition, those people who save and act responsibility are penalised at every turn. At the end of the day, if all your money is stuck in bank accounts, then the potential to have to pay a fee every time you want your money. Alternatively, you can be arbitrarily barred from accessing your funds by a cash strapped Government.

Legislators and Regulators - continue to try and protect consumers and small business operators from the consequences of their lack of business and financial discipline.

In enacting of the new Unfair Contracts Legislation this year, we see another level of complexity for B2B credit providers. Experienced credit professionals recently advised this new Legislation is causing a number of concerns.

Furthermore, the PPSA is causing another set of problems as Insolvency Administrators use the PPSA in ways not intended by the general business community when the Legislation was first enacted. The results of the PPSA legislation when tested in Court, produces disturbing outcomes to the business community.

In the world of B2B credit, creditors have to spend many dollars to enforce their rights against non-paying debtors. Meanwhile, debtors thumb their noses at the creditor and at almost no cost until proven guilty. Equally frustrating, even if you obtain Court satisfaction, there are no guarantees that you can enforce your win to get paid.

As mentioned earlier, the lessons of history are so often ignored. Innovative fraudsters and the less reputable business people have been able to manipulate legislation and regulations to successfully avoid paying their debts for years.

The liabilities forced on businesses of all sizes to operate under these current Legislative changes are increasingly exponentially with each change. Consequently, we note that Creditor rights are being eroded to the point where granting B2B credit may no longer be a viable proposition.

Business owners and managers - unfortunately are showing increasing signs that the word "CHEAP" dominates their strategic thinking and strategies more so than the words of quality, efficiency and reputation.

As an example, the dogma continues on how technology will make the cost of doing business even cheaper, and there is the problem. Mention that word "CHEAPER", and people often forget that the words cheaper and quality just do not work together in a meaningful manner.

The outcome of this focus on cheapness is noticeable in the fundamental mistakes which occur during basic business dealings. By mistakes we mean, invoices raised incorrectly, customer service calls not answered efficiently, properly or at all, with incorrect supply of products and services, etc.

When cheap, cheaper, cheapest are the mantra, we see little managerial embarrassment of mistakes when they are discovered. On another level, even if the mistake is discovered, correcting that mistake or the cause of that mistake, is given no priority.

From the opposite perspective, front-line employees are now discovering how quickly and efficiently technology based systems reveal organisational weaknesses. If you were to ask your own front-line employees, many would attest that it is almost impossible work with some of the modern systems today.

If you thought dealing with a recalcitrant human was difficult, try dealing with a non-responsive technology system. Now that's frustrating and affects the moral of all your front-line operators.

This focus on cheapness is also evident with the employment of dumbed down employees instead of fully qualified professionals. At the managerial level, we are noticing an increase in poorly trained managers and business owners who seem to have little idea on the basics of good business. 

One sign of this managerial weakness is in their employment practices. Often employees with minimum qualifications or experiences are sought rather than educated and highly experienced professionals. This employment strategy is interesting, when knowledge is deemed to be of critical importance to the modern business.

I would go one step further on what appears to be evolving due to these issues. If my front-line interactive experiences are anything to go by, fewer organisations understand their true liabilities. If this is the case, the current asset and liabilities figures in many balance sheets must be understated. 

Creditworthiness - in business seems to be less valued than ever before and declining according to credit risk information providers. With business opportunities disappearing at an alarming rate, you would think sellers would want to ensure every sale would be profitable and paid within terms. Strangely, this does not always appear to be the case.

Today we see many business enterprises suffer problems with their suppliers and customers. We are not just talking about financial creditability here. We are also talking about transactional creditability. Too often we see where (i) customer dominance over process and common sense, (ii) diminishing returns because of problems, (iii) potential number of customers available or (iv) of business disruptors, affects our chances of earning a profit.

Organisational and Personal Integrity - will become increasingly important in the future. This will occur for two main reason.

The first is due to generational change. Many individuals from Generation X and Generation Y - which is made up of The Millennial and Gen Next, are no longer prepared to work for, or do business with those businesses which do not conform to their personal ideals.

Many organisations continue to ignore this generational change by still rewarding bad behaviour or attempting to hide the bad behaviour of yesterday. This is surprising when a proper apology or a mea culpa is recognised as the best way to minimise potential losses when bad behaviour is discovered.

It is also true unfortunately, bad behaviour is still treated rather leniently. The treatment of this bad behaviour may change in the future. The reality as business people will soon discover, the cost of trying to repair reputational damage is greater than the benefit of the bad behaviour.

Secondly, B2B commerce will change when it comes to extending credit. No longer will credit be extended in the cavalier or the laissez-faire fashion of today. Increasingly government legislation is interfering with creditor rights. As a consequence, that attitude will change when businesses find that extending credit without due diligence, is simply not commercially viable.

Social Media - continues to show us there is nowhere to hide. If you have a secret which may harm your reputation, you can only pray it never comes to light. There are no other obvious defences available.

From another perspective, if you post something you shouldn't or act contrary to what is deemed to be acceptable behaviour, the public will soon let you and your friends know.

As the impact of social media continues to grow in our personal and business lives, another issue is becoming evident; the posting of false news. In future, you would be wise to consider the authenticity of what is posted before rushing in to unfounded perceptions and actions.

As social media continues to become more invasive, it would seem your future focus should include trying to act responsibly in order to protect your business and personal reputation.

In Summary

The ramifications of the events seen and reported in 2016, send a clear message to all business professional and business enterprises; nothing stays the same. What may have been acceptable in 2016 and prior, will not be acceptable in 2017.

I would suggest the key messages of 2016 were:

1  It appears business people are increasingly becoming focused on quick and cheap fixes to their problems.

2  The art of doing good business is increasingly lost due the employment of dumbed-downed employees and equally poorly educated business managers.

3  A sound business can only be built via strong financial and operational disciplines.

4  A combination of good technology and people are essential to maximise the potential of your business.

5  The amount of sovereign and household debt is at a level which will continue to impede local and global business development.

6  It would seem we can longer trust anybody or organisation to help us or to "... do the right thing! 

7  it appears the low interest rates are continuing to be utilised for purposes other than to protect the consumer or the business for the long-term.

Turbulent times, the new norm, will continue into 2017. There are going to be winners and losers as a result. Those that prosper will do so because they understand their business does not operate in a vacuum. Today we live in and operate in both a local and global business community.

The wise business person will always continue to look at what is happening around them and will realise business is nothing different from life in general. You attempt to operate fairly, accept the value of discipline, work with the best stakeholders and never stop trying or learning.