Credit Matters

Reviewing a Recession - A Calendar of Events

By Kim Radok, August 2020

The focus of this feature is to document a living recession from the perspective of a professional risk manager and front-line operator’s perspective. This review is designed to help identify the nature and progress of the events of the recession.

Due to so much conflicting information at the moment, I have presented my version as simply as possible.

Background to Recessions

Recessions and business downturns occur regularly as a normal component of all business cycles. In a downturn or recession, there are many casualties from all areas of our lives; business, consumer and social. Downturns and recessions are not simply about losses however. They also offer possibilities to make money by seizing the opportunities that always arise during these events.

History shows us, on average, downturns and recessions occur every 10 years. The previous recession (or “downturn”) prior to the GFC (Global Financial Crises) was the exception at 14 years.

In 2018, ten years since the start of the GFC, I thought it timely to prepare a feature on the characteristics of a recession. You can find THE ANATOMY OF A RECESSION at

The reasons to focus on a recession at that time were detailed in the feature. However, I feel it appropriate to discuss the three most important at this time. These are, that many business managers, or owners:

  1. today have no experience, or true concept of the ramifications associated to a substantial business downturn or a recession;
  2. (ii) are unable to identify and review the lead-up to a pending recession as an opportunity to mitigate the negative effects; and
  3. (iii) need encouragement to be positive and benefit from the overlooked opportunities which always occur during a recession.

Waiting for the declaration of a recession is often too late to take effective action. The earlier you start to work on your affairs, the better. If you take the right action early, not only may you survive, you could actually make more money than normal even during this, often debilitating, period.


Introduction from June to August 2020

Another three months have passed in 2020, where the COVID19 virus and its affects have continued to dominate all aspects of our personal, social and business lives. It is interesting to note the variety of approaches by different countries, and even the states within the same countries, on dealing with this virus.

What is clear is that once an area is clear of the virus, despite the best efforts of the authorities, cases of the virus can still reappear. New Zealand is a perfect example which had appeared to be clear of the virus for some time.

The Downside of the June to August period


To date, we have seen how quickly the virus has affected the world economies and the number of sick people and deaths world-wide. Unfortunately, despite all the losses, many people and the majority of the business community still do not get it. The world has changed around us dramatically, and we will continue to be negatively affected for many years. The old ways of doing business have changed.

What I really mean by that is the old ways of the last forty or so years have changed. The traditional ways of doing business haven’t. In the last 40 years we have seen many business models tried and proven to be wanting, even in the good times, let alone in this economic climate. The GFC proved that the fancy new ways of doing business was just a warning that traditional ways of doing business were essential for survival. It was a warning that has largely been ignored.

The businesses which currently appear largely unaffected in an operational sense so far, have been those which understood the importance of the proven age-old business practices. Most of these businesses:

  • had little or no debt;
  • cash reserves;
  • valued and understood the importance of good business discipline;
  • had a good business reputation;
  • a strong people culture; and
  • a respect for their customers and suppliers.

Reflection of these prudent and proven business practices can be found in every successful businesses’ accounts payable or accounts receivable ledger.

Unfortunately, some of these businesses may still go out of business because of external factors they cannot control, which include:

1          government and unelected bureaucratic dictates made by people who have never operated a business;

2          politicians and bureaucrats who are still playing politics instead of acting for their communities;

3          supplier and customer frauds much of which is supported by do-gooders, government directions and non-government organisations;

4          costly legal action to defend the business’s rights;

5          the removal of creditor’s rights in some jurisdictions to pursue legal costs even where there is a legally binding contract allowing such action;

6          preferential payments to be repaid or defended in the future, etc.

Many other businesses which may be already trading insolvently, are still operating because they are:

  1. able to convince their customers and suppliers into believing their business is worth dealing with;
  2. zombie businesses surviving on government handouts, cheap interest rates and slow paying their suppliers;
  3. naïve business people who believe they can wait out the current slowdown and then trade as if nothing has changed; or
  4. living in the hope of finding a “white-knight” investor to save them from insolvency and prevent them losing everything.

Government Support

Short term support which has been offered by governments, creditors and debt collectors to keep many enterprises going, is just that, short term. When the day comes to start paying the bills and deferred debts again, that is when the problems will really occur.

Lack of Urgency

In spite of the above factors, it also appears that there is no urgency in the business community to strengthen their business structures and processes to withstand future problems. For instance, organisational records are increasingly out of date, collecting outstanding accounts, answering critical customer enquiries, seeking early payment to protect against preferential payments or engage debt collectors, etc. These are important and essential factors which are essential components of survival as we work our way through the recession.

The engagement of professional employees in conjunction with the implementation of sophisticated strategies, are missing within many of these same businesses. Again, these factors are another component which may help avoid the worst of any problems caused by the recession.

Changes in the Major Cities

A further demonstration of the changes ahead can already be seen in the major cities of the world. People and businesses are leaving and many will be on a permanent basis. Those businesses which are leaving or not reopening, include the supporting infrastructure type businesses such as florists, hairdressers, dry cleaners etc. In addition, the businesses which supply the social needs of cities, for example, cafes, restaurants and theatres etc. will also be slow to return because of the lack of paying customers. It is these businesses combined, which have made the cities so vibrant and liveable.

History shows that after disasters or pandemics have occurred, there will always be fewer operating businesses, affluent residents and families with young children left in the major cities. Consequently, there will be less money to maintain the pristine appearance and fun elements which make the major cities so liveable. The environment will furthermore be less inviting due to the changing look of the city which will worsen due to vacant shops for lease or sale, alongside the untenanted business and residential buildings. With reduced incomes, owners and landlords will be spending less money on maintenance and the appearance of their buildings.

In view of the above it is very likely, again as history shows, the poor, homeless and petty criminals will return to the cities. These people will return because the city will now be more affordable and provide them with the environments in which they can survive.

Pent Up Demand Recovery

There is currently much talk of the regeneration of business and the economy will occur naturally through “pent up demand” when the lock downs and restrictions are lifted. However, current evidence suggests otherwise as frightened people are paying debts, saving and now spending differently.

Meanwhile, those people on government handouts have largely spent their money on just surviving, paying rent, alcohol, or gambling, and so this money is already gone.

Finally, there will be people unable to find work, or who will become unemployed when government support is stopped. This situation will be compounded when the periods of grace regarding insolvency or bankruptcy, debt collection and rent payments are removed. Once the zombie companies start closing down and other business people realise their business is unsustainable, the numbers of unemployed will further increase.

Each of the above employees and business owners who no longer have an income other than from a pension or other benefit, will probably have debts built up which need to be repaid. Again, a further drain on finances available for future spending capabilities.

Destruction of Trust

Another disturbing factor has become obvious. It is to see the people and organisations we all depend on, or look up to, flounder or actively work against the good of the communities in which they operate or serve. For instance, we see:

1          politicians and their senior bureaucrats playing politics and lacking the compassion and a level of common sense expected to help people with real-life problems;

2          politicians and their senior bureaucrats refusing to accept responsibility for their actions, and equally important, failing to learn from these mistakes, nor are they rectifying their procedures to prevent a future reoccurrence;

3          a number of major corporate businesses taking government handouts whilst refusing to pay their suppliers, and or, still paying bonuses to senior management and shareholders from “profits”;

4          a number of unions and their representatives which act as though the recession is not here, continue their actions based on historical ideological thinking, and demanding more and more from businesses of all sizes;

4          postal services not employing the resources required to maintain efficient services because delivering mail to people and business customers is deemed not as important as delivering parcels to those same customers.

Two Other Factors

First, a number of employees and others receiving government benefits, at times greater than their normal wages, are refusing to go back to work. Viable businesses therefore are unable to reopen properly. It will be interesting to see what happens if and when those workers seek to return to work.

Secondly, are the signs of Covid19 and recession fatigue where people and organisations of all types, seem unwilling or unable to see any positives. It is as though the problems are so great, there is nothing they can do proactively to take advantage. Regretfully, this situation is accepted by these people and organisations as a given. Their attitude is therefore unlikely to change until there is guidance from the authorities on how we can live with the pandemic and still operate successfully.

In the meantime, proactive people and organisations which may include competitors, could be taking the opposite strategy and seeking better ways of doing business. It is these businesses which will gain an advantage over those that are sitting back disillusioned and not doing anything.

The Positive Aspects noted from June to August

The actions of Governments have continued to seek and offer what they can to support people who have lost their jobs, or to keep businesses from closing down. These actions are designed to mitigate the worst effects of the anticipated recession; at least for the short-term.

We must also applaud all the organisations and people who continue to support those less well off, or lonely, or those which have lost jobs. It is pleasing to also note the efforts of local sporting organisations which try to look after their members and supporters, often without any support from governments.

There are inspiring stories in the media of those businesses and people from all walks of life and circumstances, which have adapted and are creating new products and services. The range of the new or adjusted products and services are almost never ending. Hopefully many of these efforts will continue to be profitable well in to the future.

Many businesses are learning new ways of working with their suppliers, customers and employees. Through collaboration comes a better understanding of each parties’ needs and finding better ways of doing business.

It is also pleasing to see the number of businesses sending their employees “thank you” or “care packages” to help them get through these tough times. Meanwhile, other firms are being understanding of their employees who have to help with their children’s schooling, or need to care for others in their family.

It is the “thank you notes” from the grateful employees of these businesses which is fantastic publicity and which does not go unnoticed. These actions all contribute to building hope for the future, plus enthusiasm and increased mental fortitude.

In Summary

Amongst the few bright spots showing up through the June to August period, we continue to see the worst of behaviours of the people and organisations which we rely on and or, look up to for guidance.

In addition, the lack of business acumen, coupled with a lack of urgency, is also an inhibiting factor in the ongoing viability of many businesses. Perhaps a degree of what is happening is due to a what I call “COVID19 and recession fatigue”. This fatigue could well be due to the pressures of what seems to be a situation with no apparent light at the end of the tunnel and ongoing negativity projections for the future. Combined with the daily grind of ongoing work required to just survive feelings this “fatigue” is understandable.

The real problem we all face, is that apart from those which are already experiencing the worst of times, the real pain is yet to be experienced. That time is still six to twelve months away. In the meantime, for most of us, despite a few positive factors, what we will see are the negative factors slowly multiplying.

If you have any questions, require any further information or need support, contact or telephone +61 3 9886 6707.  Ah: +61 3 9802 0608,

or Mb: 0411 649 261.Copyright, August 2020


Prior to the acknowledgement of the recession, were warnings ignored or suppressed?

There had been some disquiet in the media about the possibility of another business downturn or recession prior to 2018. This foreboding of concerns continued throughout 2019 as more people started to question the business realities around them.

It would appear, these warnings were largely ignored because of the more favourable news being presented by those who saw no such problems. In addition, those with a focus on positivity, had agendas which meant they didn’t want to alert the general populace of any possible negativity.

Unfortunately, we seem to live in an era where people neither like to hear of anything negative, nor review history in a positive light. We know however, that there are many lessons which can be learnt by studying our history.

We know of course, with the advent of the COVID-19 virus, a recession is now upon us. Whilst many blame the virus, this event overshadowed all the other indicators that a recession was forthcoming in the near future.

The Recession from February to May 2020

In the first months of 2020, we had seen a varied range of responses, (depending on individual situations) from each enterprise. These responses ranged from panic and organised chaos, through to innovative solutions and actions, or “steady-as-she-goes,” as though nothing had changed.

The Downside of the First Three Months

From the very start, many organisations had displayed a lack of concept, or had failed to make any preparations for a potential downturn or recession. As a result, many of these enterprises did not have the financial resources available to “ride out” an economic catastrophe. We know this as fact because of the number of them that were unable to survive even the first three months, of government responses to the virus.

Other enterprises saw potential insolvency and wisely took steps to protect what assets and reputation they have, by calling-in Administrators. Many other enterprises are struggling to survive. Many of these are deemed “Zombie” businesses as they are only surviving on debt at low interest rates, or government support, or by slow (late) payments to their creditors and suppliers.

Management in some cases have shown a level of panic; this being a natural reaction of those unprepared and revealed their lack of understanding toward positive possibilities, which a recession offers. It is as though they foresaw nothing, and now believe that economic activity simply ceased overnight due to COVID-19. Although this situation is true for some, it is not yet a reality for others.

As a consequence, employee hours were reduced indiscriminately, or employees have been terminated without due regard for the consequences. By taking these actions, management is also showing they fail to understand the seriousness of the situation, in that business is now in a war-of-survival and only the fittest will prevail. This means:

  1. collecting outstanding invoices quickly, and in a manner, which does not draw attention to insolvency administrators now, or in the future;
  2. maintaining excellent standards in customer service;
  3. fixing and eliminating errors that cause mistakes which are expensive in time and/or money to repair and/or provide customers more opportunities to pay even slower than normal;
  4. updating the accuracy of all customer and supplier files;
  5. ensuring all trading agreements or credit applications and contracts are in order;

It is more noticeable that “people-to-people” communication, is now more difficult due to a lack of appreciation of its importance in the business environment. Due to a lack of investment in the appropriate technology and the under employment of personnel, it is almost impossible to speak with a person directly. This is a major problem moving forward. As management has emptied their offices of people, there has been little, (or not enough) provision for telephone interaction to be transferred to employees working from home.

Continued communication with clients and suppliers will be a key component for survival. Early planning for the provision of appropriate technology enabling smooth telephone redirection of contacts, while employees are required to work from home, will be essential.

We also note that many business models have proven to be totally unsuitable for business downturns and recessions. No business environment stays steady over time. It is not surprising therefore, to note concepts of “just in time” replaced with “just in case” purchasing. In addition, it is noticed that outsourcing of essential functions in many cases, has become less sustainable.

Short term support has been offered by governments, creditors and debt collectors to keep many enterprises going. Unfortunately, we have also witnessed the worst in human nature, with people milking or taking advantage of the benefits provided.

The Positive Aspects of the First Three Months

The actions of Governments have largely been laudable as they have shown a willingness, where possible, to support people who have lost their jobs and businesses which have been forced to close down. These actions were designed to mitigate the worst effects of the anticipated recession; at least for the short-term.

As business enterprises in specific industries or categories have disappeared, others have kept going as usual. It is the latter businesses which have proven, that with the right business model, at least for the short term, a business can continue to operate in adverse conditions. The performance of these businesses has been inspiring, as others have descended into chaos.

Those businesses which are surviving, have done so by understanding:

  1. a recession or downturn was a possibility and had planned accordingly;
  2. sought to proactively reduce debt owed by the business and the debt owed by customers;
  3. the importance of business disciplines;
  4. the proper use of technology and employment of quality employees as essential;
  5. the value of a positive organisational culture, etc.

Pleasingly, other businesses have adapted remarkably well via innovation and the willingness of their owners and managers in manufacturing new products and developing new services. Many of these businesses, have survived or done markedly well under the circumstances.

In Summary

It would be fair to state that in the first months we saw a mixture of expected behaviours of the business community, which were both deflating and positive.

From a negative perspective, we saw how few businesses were prepared for any sort of business downturn. As a consequence, many current business models have been found to be unsuitable for the current economic environment. The evidence of this factor has been the financial fragility of these businesses, a number of which are now no longer operating.

We have also seen the panic by management to implement amended operating processes and an inability to understand the future negative repercussions of their actions.

Regretfully, we have seen the demise of many businesses with the consequence of increased unemployment. It is anticipated; there will be many more of these negative events within the next 12 to 24 months.

On the positive side, we have seen governments trying to mitigate the worst of the effects of the shutdown with direct financial contributions to individuals and businesses.

We have also seen how the business community has shown the ability to develop new products and services whilst adapting to the changing needs of their customers, and even acquiring new customers.

It will be interesting to note what happens in the next three months.

If you have any questions, require any further information or need support, contact, or telephone 61 3 9866 6707, AH: 61 3 9802 0608 – mobile 041106429 261