Credit Matters Newsletters

In our first feature Monthly Business Conundrum we discuss the concept of business disciplines. Business disciplines are introduced for a reason as they help everybody in the business understand and operate within the risk dynamics of their business.

However, are business disciplines always sacrosanct? In my view no, because too greater an emphasis on the discipline can at times, hinder the development of the business. Small variances with the risks calculated properly can be taken from time to time to win a deal.

However, when business disciplines are wilfully ignored, large losses and penalties can occur. No where do we see a greater conflict occur in the commercial environment than between the sales and credit  functions when disciplines are not managed properly.

The recent reported situation at last year's Magic Million sales is a perfect case. It was reported, the eventual winner of the auction for Black Caviar's younger brother "Jimmy", was allowed to continue bidding for the colt, even though he had exceeded the credit limit set by the business.

Obviously, the business managers were hoping to create a better sale price for the horse. The problem as we now know, the winner of the auction could not pay.

To add insult to injury, the horse was never paid for and has died. Now an additional problem exists, nobody is sure who is entitled to the insurance money.

The lack of sales discipline happens daily in the commercial world. Mostly, the  end result is not as dramatic or so widely advertised as in this case. However the losses continue and unfortunately, rarely are the lessons of ignoring basic business disciplines learnt.

Article - "Losing the Edge" by Patrick Bartley and Ben Butler, The Age 4th of January 2014.