Credit Matters Newsletters

In December we added a new feature about Fraudsters on Credit Matters homepage at creditmatters.com.au. The feature is still being added to, however it is a start to help people understand what a fraudster may look like. As the final feature will show, a fraudster comes in many human forms.

We are also pleased that Daniel Turk from Turks has allowed us to feature one of their articles titled "A simple guide to determining priority between trade creditors with caveats registered on land". The link to the article is as follows: http://www.turkslegal.com.au/sites/default/files/publications/TurkAlert%20-%20A%20simple%20guide%20to%20determining%20priority%20between%20trade%20creditors%20with%20caveats%20registered%20on%20land.pdf

Advertising via Credit Matters

If you are interested in reaching business prospects who need your services or products, contact Kim to see what he can do for you. There are many different opportunities to advertise your business via Credit Matters and it may not be as expensive as you might imagine.

In this newsletter, you will find an article compliments of The Australian Small Business and Family Enterprise Ombudsman about a roundtable meeting between the Ombudsman, FinTech Australia and the Bank Doctor.

We also have a message from STOPline about taking care at Christmas.

Welcome to our last newsletter for 2017. 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 and will continue to adapt to the changing circumstances we will experience in 2018. I implore you to consider the same as there is nothing stable or static about doing business today.

I anticipate 2018 will offer many positive possibilities if you concentrate on the basics and reduce liabilities and increase your cash position. In addition, try to take advantage of the lessons learnt in 2018 to make you a better business owner, manager or professional.

May we all reach the end of 2018 with our businesses and careers 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.

We have all encountered another interesting year in 2017. This has meant there have been many twists and turns which kept all business owners, managers and professionals on their toes.

The complexity of the modern business and social environments continue to grow, which means we all need to keep working on our businesses, not just in them.

My core observations as a financial risk management professional, business owner and front-line operator follow.

Globally –2017 started in a mixed state of gloom or optimism depending on your situation and beliefs. The doom and gloom merchants thought the world would see another financial crisis. Meanwhile, the naïve and positive thinkers, were looking forward with optimism that the best was ahead. The reality has been mixed as usual with winners and losers.

It would appear the greatest problems from a global perspective over 2017 has been increased business volatility, debt’ and the rise of tribalism within communities and countries around the world. These factors are also compounded by the impact of technology which when used by people with malicious intentions, fraudsters and nefarious government agencies, causes even more problems.

The full effects of Brexit and Trump policies are not yet fully known. There are indications in the short term, of a decline in business optimism within the UK and a relatively stable situation within Europe. In regard to the US, there seems to be slight rise of business confidence. In addition, there is some evidence of the initiatives of people in the poorest areas of the US, to reinvent themselves with new business start-ups.

China is an ongoing conundrum with the “experts” speculating about possible outcomes because so much information, good and bad comes out of China. In addition, many people are concerned about the accuracy and quality of their commercial information. The major negatives associated with China, seem to be its expansionary actions in the China Sea and its perceived meddling and involvement in the domestic affairs of other countries.

We continue to see other parts of the global community still at war, the rise of nationalism and the associated problems caused by political turmoil, for example in Spain. Of equal concern are those countries which are fundamentally insolvent. As these situations do not seem to be getting any better, it is difficult to see how global trade can be increased by any meaningful amount.

Equally disturbing are the continuing scandals which occur in every country. It seems no industry, profession, person, or country is immune from these scandals. Of course, these scandals have always existed, it is just that more people are speaking out about them due to a number of factors. The use of social media, changing attitudes to business practices, changing community expectations and a willingness to challenge the status quo, are amongst the factors causing this rise in the various scandals coming to our attention.

Government interventions continue which often defy common sense, add extra red tape and overly restrict genuine and honest businesspeople from operating an effective and profitable business. In the face of overwhelming evidence that many of these interventions only provide additional advantages to the unscrupulous and fraudsters, governments still persist with their interventions.

When governments get the legislative balance wrong and disenfranchises people, many change their practices to suit the new circumstances. With world business stagnating, I would suggest, penalising honest and genuine businesspeople is not the answer. However, if governments  continue to intervene with the wrong initiatives, this may well happen.

Probably the greatest warning sign that business factors have not improved during 2017, has been the continued rise of global debt in all its forms. Even more importantly, much of this debt is currently still hidden by creative accounting practices and undocumented.

As a final observation, the 10^th anniversary of the GFC is now upon us and the business factors which lead up to the GFC are once again being mentioned. Many of these negative business factors which lead to the GFC are again gaining prominence, the major problems remain unresolved, and the global debt is worse than ever.

Australia – according to the economic commentators, is supposed to be in reasonable economic shape, albeit there are areas of concern.

Indicators are that the Australian experience in 2018 could be improved by a rise in good news stories and as the Australian focus on mining is transferred to other business opportunities. There has also been a small reversal of the mining industry’s fortunes, small as they may be for the time being, which is another positive.

Regretfully however, in the analysis of economic conditions, the negative factors which impact on the success of Australian business enterprises are often overlooked or minimised. The social issues of youth unemployment, adult under employment, drugs, gambling, and the number of people without a regular roof over the heads, are not going away. When the negative effects of these issues are factored in to the overall picture, Australia’s ability to move forward with confidence must be a cause of concern.

In another sign that all is not well economically, the rise in robberies on homes and the elderly, plus soft business targets continue to be of concern. It is a well-known fact, known by those that operate within the field of criminology; more “good” people commit crimes in tough times in order to survive than in good times.

Australian households continue to be the most indebted in the world. This debt has compounding negative problems for us all. For instance, if people are paying back debt, this reduces their spending in the retail sector. Retail spending is also being constrained by other factors which include low interest rates affecting investors ability to spend, low wage growth and increased utility costs for both businesses and households.

We must also remember, Australia, an island, has no motor vehicle manufacturing industry to speak of these days. In addition, the associated businesses which remain, will never employ the same numbers of people who have lost their jobs. It is all very well to sprout on about retraining and further education on those who might move to another form of work. The reality is, these options are not available for everybody who have lost their jobs.

In regard to China and Asia, our politicians, business experts and academics, seem to be putting all our economic eggs in to the one basket. As a result, China and Asia are now amongst Australia's largest trading partners of the world. If there are problems within the Chinese economy or conflict between our Asian neighbours, the ramifications of this focus could well be less than pleasant.

With such an emphasis and effort focused on doing business in Asia, the other areas of the world which may be of equal value, are often being neglected.

In summary, these are all classical signs that the Australian community may not currently be in a good place, despite what many proponents would suggest.

Banks and other financial institutions - continue to show that when it comes to supporting small business, they remain a problem. Yes, they have advertising campaigns focused on small business as they seek to sell all their wonderfully expensive products. The fact is, they still appear reluctant to support micro and small business enterprises unless bricks and mortar security is provided.

As a consequence of banks’ strategies, alternative funding providers are entering the finance market with their range of products and easy access to finance. There are several issues which are of concern with these new finance providers and products. For instance, when we start to read and see such terms as “shadow banks and shadow bank loans” the potential for unforeseen negative factors to cause problems, cannot be overruled.

In addition, very few people seem to be asking such questions as: (i) who are behind these lenders, (ii) are they really cheaper than the banks, (iii) what are the real terms and conditions behind the loans, (iv) are sales strategies of giving out risky money to risky borrowers of value, etc. It would be interesting to know for example, how many of the funders would be deemed to be acceptable if proper due diligence exercises were completed?

Crowd funding seems to be another viable funding source. We have already seen possible negative issues starting to occur with this form of finance. governments seem to want to want to regulate the industry, which always increase costs. There are also issues with investor rights, possible conflicts with disgruntled investors, the businesses owners’ rights etc.

There are a lot of possible negative factors at stake in the current business environment when it comes to business funding. Desperate business owners or those seeking instant success and looking for finance, do not always explore all the factors of these alternative funding models properly.

Business payment options – another state of the art payment option seems to be developed almost on a daily basis these days.

No one seems to know how stable or viable many of these payment options may be over the long term. In addition, often we do not know the identity or ownership of these new payment facilities and whether they are sound business operators with the financial resources to manage these providers. The truth is, not all these new business enterprises will be as stable or offer the same transactional security of the major banks.

There are several additional issues which affect payment options these days, and not all are of a positive nature if reports in the media are to be believed.

The first of concern, is the rejection of genuine purchases by suppliers of payment services. These rejections are often an arbitrary reaction to their customers, claims of fraud, or non-deliver, or a lack of authorisation. When these claims are false, sellers are left with the costs associated with their lost products and services, plus the costs associated in recovering their funds.

Secondly, the cost of establishing and operating credit and debit card processing facilities can be expensive. Whilst many businesses seem willing to accept these costs, others will not. Surprisingly, many businesses seem to survive and grow, despite not having these facilities.

Thirdly, if there any disruptions to WI-FI or power facilities, then digital payment options, become inoperable. To further emphasise the problems of digital payment methodologies, the situation in Puerto Rico post Hurricane Maria, provides us with a sobering insight of these issues.

Fourthly, criminals use of hacking technology is on the increase. We also know they use technology better than most people. One of fraudsters latest strategies is to hack mobile phones, and why not? Unfortunately, many people store too much personal information, make payments, have access to travel information, plus record their life story in pictures, on their mobile phones.

Payment by and ownership of cryptocurrencies are amongst the leading discussion issues these days. Are they the way of the future, undoubtedly! Are today’s cryptocurrencies safe? A big question which is too hard to answer simply on this occasion.

The main issues with cryptocurrencies today include: (i) accessibility, (ii) trust, (iii) usability, (iv) avoidance, and (v) the focus by government and central banks. Of all these issues which should be of most concern to the holders of cryptocurrencies, is the focus by governments and central banks.

Governments and central banks hate secrecy, uncertainty, loss of control and missing out on revenue. Consequently, if governments believe they are losing control, they can easily declare non-authorised cryptocurrencies illegal as well. After all, if they can declare bank notes of a particular denomination as illegal tender almost overnight, they can do the same cryptocurrencies.

Can money be made out of cryptocurrencies? Yes, undoubtedly! Care is required however because the people which will make the most money are likely to be fraudsters, first buyers, early converts, or people with the discipline of a professional investor who specialise in risky investments and can afford to lose their investment.

Unfortunately, many of the later day converts will lose money by not understanding the negative factors associated with cryptocurrencies. These factors include negative government reactions, losing their holdings to a hacker, or losing their computers and mobile phones.

Other factors which will cause loss; (i) are people which got caught up in the hype and bought at the top end of the market, (ii) holding on too long to their holdings thinking cryptocurrencies are a normal investment product and (iv) being unable to sell for a profit, or if they need their money. After all, it should not yet be forgotten, cryptocurrencies are not currently universally accepted by everybody.

Of most concern are those governments which are endorsing cryptocurrencies, bitcoin in particular, plus recognised businesses which are succumbing to the cryptocurrency frenzy and creating products and services. If there are any major negative events, these organisations, effectively endorsing the authenticity of cryptocurrencies, will help magnify the extent of any losses.

The degree of loss will depend on the size of the investment and the person’s rationale for holding cryptocurrencies. For instance, if an individual has an inflated idea of their worth and spends in the belief that paper profits equate to real cash profits already in their bank account, there will be a problem. Many of those who hold a small stake in any cryptocurrency will probably survive OK. Others, where their asset worth is mainly tied up in cryptocurrencies will lose a lot.

Legislators and Regulators - continue to try and protect consumers and small business operators from the consequences of their lack of business acumen and financial disciplines. We know this from the stated purposes of their regulation and legislation. We also see this intent by a lack of equal rights for creditors and honest businesspeople.

The intentions behind many government initiatives are well meaning. However, governments are like most do-gooders in that respect. They all have the best of intentions however; their solutions often produce unintended and negative outcomes in the real world.

There are many examples that with every do-gooder or government initiative, the fraudsters and others with less honourable intentions, benefit at the expense of genuine business people and citizens.

The perfect example which we have seen this year has been the result of recent tobacco excise increases. Currently we see soft targets like shops which sell tobacco products being targeted by criminals. In addition, it is also no coincidence, the importation of illegal tobacco has escalated, whilst the payment of vital government taxes is being avoided.

The increase of excise was designed to put people off tobacco products. There is no doubt, some people have stopped smoking and therefore society is deemed to be better off. The question remains, was the increase of criminality and loss of government revenue factored into the scenario? I do not believe it was and therefore it could now be that society is worse off overall.

A contra view of government legislation taking a more realistic look at human behaviour, and what might be the good of society, is to look to the US. Currently in the US, selling marijuana is now legal in some states. Has the good of decriminalising a social drug and taking a profit away from criminals, plus the various states earning additional revenue, been a success? There appears to be little evidence either way at this time. It is an interesting story to say the least however.

The Privacy Act continues to be major negative issue for many businesspeople. Fraudster employees for instance, all too often get away with committing crimes without being reported in a meaningful manner because of the Act. As a result, these same people are employed by other unsuspecting businesses and then commit further crimes.

Despite promises to reduce government red tape and regulations continue to increase. As a result, genuine business people and organisations are continually penalised by another cost. Meanwhile, the less ethical and fraudsters get away selling their services and products cheaper because they simply ignore those costs imposed by governments.

Furthermore, when people and organisations make enquiries about issues with government services, too often, bureaucrats hide behind the Privacy Act from providing qualified information.

Business owners and managers – regretfully, continue to show all too often they do not learn from their past experiences and from the world around them. As evidence of these short-comings, we see them focusing on cheaper business inputs, reducing costs and the belief that technology is the answer to all their problems and the basis of their success.

As a result, many business owners and managers are failing to focus on actually doing business efficiency and profitably, which places their financial wellbeing and reputation at risk.

The short comings of many business operations, is seen in their failure to understand; people are the link between each business and each part of every business. When interacting with other businesses for example, you will often find that there are no advertised telephone contacts and/or names of employees you might need to speak about your issues.

If there is a telephone answering system, it is usually automated with an out-of-date contact menu list of options. I say out-of-date menu, because most menu options these days are time consuming to use and not customer friendly. In a time-poor world, expecting the people you need to do business with to spend so much time in such an unfriendly manner, shows a lack of business nous.

Visiting a business’s website is another issue. Inevitably, if there are no specific telephone contact details, you are likely to be directed to a “help desk”, or other contact facility. In such situations, rarely will any interaction between businesses be achieved quickly or efficiently.

Those business owners and managers which follow the herd relating to the use of technology and cheaper business inputs, often join their competitors in a race to the bottom and failure. When you do not focus on creating a positive business culture, quality operational processes, your business losses any point of difference with your competitors.

Further, as you follow your competitors into sameness and upset your customers, this provides the business disruptors with an opportunity to enter into your marketplace. There will always be room for business disruptors when the incumbents in any industry, fail to manage changes in their business environment and to respect their customer needs.

It would appear that many business people now fail to understand the art of business. With so many business people focusing on cheapness and technology, the fact there are customers willing to pay a fair price for quality and peace of mind is often lost. This is unfortunate because these customers are generally easier to deal with, forgiving of on an occasional problem, more loyal and therefore, more profitable.

Creditworthiness – is a priceless commodity too often forgotten today. Your creditworthiness is often a guarantee of better service, a less expensive purchasing regime and peace of mind.

There are often no financial measurements on the value of peace of mind in business. Never the less, there are potential financial benefits when things go bad, as they always do from time to time. Suppliers for example, knowing their customers operate under creditable and sound business practices gives them greater assurance of being paid within terms of trade.

The customer also benefits from sound business practices when they pay their suppliers on time. Suppliers are often more willing to help their customers through bad times if they have a good payment history.

Organisational and Personal Integrity – are becoming increasingly important to the younger generation, to your business stakeholders and to the general public. Your integrity is one of the foundation factors which helps you survive and grow your business interests.

As is the case for creditworthiness, reputation is another key to business survival, whatever your motives for the longevity of your current business. For instance, and it is legitimate business objective, a number of business entrepreneurs start a new business with the view of selling the businesses once it become profitable. Maintaining your long-term business objectives to be seen as a credible entrepreneur, is therefore essential.

On the other hand, if you are looking to build a long-term usiness, your individual and organisational integrity will be one of the core factors in the survival and growth of your business.

Another future factor of B2B commerce will be the changes in attitudes and requirements when extending credit. The focus of current government legislation, the beliefs of the “entitlement generation” and as the costs for creditors increase, cannot be ignored.

This means the laissez-faire fashion of extending B2B credit as it was in the past, will become increasingly and commercially unviable. In future, your creditor stakeholders will expect their customers to pay on time, be socially acceptable and legally compliant. With such expectations, there will be an increasing focus on your reputation, financial creditability and social acceptability.

Social Media – is growing ever more powerful in the success of your business for four main reasons.

The first is; there is nowhere to hide anymore. If you have a secret which may harm your reputation, you can only pray it never comes to light.

Secondly, when bad news does see the light of day, responding in the old-fashioned way of denial and silence will just not work We can already see that these old strategies rarely end positively. In future therefore, you would be wise to include a strategy which includes a prompt mea culpa and positive common-sense responses.

Thirdly, 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.

Fourthly, conviction by association is becoming increasingly a problem.

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 at all times. You will make enough mistakes operating to the best of standards. To continue to make mistakes because of sloppy or unethical behaviour, will only hinder your business’s recovery from the negativity of mistakes even harder to overcome.

In Summary

The ramifications of the events seen and reported in 2017, send a clear message to all business professional and business enterprises. Nothing stays the same. Furthermore, changing social and global issues, indicate what may have been acceptable in 2017 and prior, will not be acceptable in 2018.

I would suggest the key messages of 2017 were:

1  Businesspeople have continued their focus on quick and cheap fixes to their problems and less on understanding the factors required to create a profitable business.

2  Technology has continued to be used inappropriately to the point where it is starting to impact negatively on the long-term viability of many business enterprises.

3  Cybercrime and criminality continues unabated.

4  The amount of sovereign and household debt has continued to grow and impede local and global business development.

5  There are no secrets anymore due to impact of social media, disenfranchised employees and whistleblowers. In another development, we have seen Legislative requirements now seek to protect whistleblowers.

6  Government legislation and the costs of do-gooders will continue to impact negatively on creditor rights and other honest and genuine businesspeople.

7  Reputation and financial creditability have become even more important factors in the survival and growth for all businesses and professionals

2018 and Beyond

The genesis of what will happen in 2018 can be seen in what happened in 2017.

There is no doubt, further turbulence can be expected in 2018 with the ever increasing fragile economic and global factors being the norm.

Those that prosper will do so because they understand their business does not operate in a vacuum. Every business and person, lives and operates in both a local and global business community. What affects one community or country, affects another.

In such environments, it would seem the traditional practices of operating fairly, accepting the value of discipline, working with the best stakeholders and never stop trying or learning, provides the best factors for survival and success.