Credit Matters

Reviewing a Recession - A Calendar of Events

By Kim Radok, August 2020 Updated: 11 March 2021

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 www.creditmatters.com.au

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 December 2020 to February 2021

Three months have passed since December 2020 and the COVID19 virus and its affects have continued to dominate nearly all aspects of our personal, social and business lives.

It’s clear this virus continues to be a real problem, especially as it is now mutating and has reasserted itself in many countries.

Many of the negative business and outstanding debt issues, which are yet to be felt, remain in place. It also appears that little has changed, in the mindset, of many business people who appear to act as though barely anything has changed within their business.

The Downside of the December to February period

Business

In Australia

It is still apparent, that few business people have realised that doing business has changed due to the recession. Many still seem to be fooled that all is well because retail in most areas was doing okay; housing and share market values were improving leading up to Christmas and in to the beginning of 2021. Retail sales were especially on the improve.

The above situation is unlikely to continue however, due to the detrimental effects of constant border closures in Australia. Meanwhile since Christmas, the plight of the tourist, arts and sports communities continues in all states.

The thoughts of the captains and senior managers of large corporate business make interesting reading, (if you have followed their statements in the media). Most of their comments seem to indicate a lack of interest in protecting their business’ reputations, ensuring revenue from sales is collected as quickly as possible or in quickly paying down their debt(s).

Rather, we see the same old objectives of cost cutting, staff training, outsourcing, automation, digital transformations, retrenchments, taking advantage of cheap interest rates etc. These strategies have been popular in the past. However, a number of these strategies will now cause more damage than benefit. After all, interest rates are unlikely to keep falling and can only go up, especially if inflation occurs

Furthermore, too many zombie companies still exist. The negative effect on suppliers’ sales and accounts therefore is yet to be felt. When the wholesale support stops, the real pain will begin, and no business, especially those offering B2B credit will escape unscathed.

Many people involved with businesses which are not doing well, or just surviving, are still not asking the questions they should; about the possibility of insolvency. This is despite warnings from insolvency administrators and other business professionals who are increasingly advising directors and owners that this may be a wise action to take.

Globally

The situation in many countries is even worse than in Australia; due to constant lockdowns, border closures, and local wars. These are the actions which curtail the movement of people and cause disruption to normal business practices. Businesses are closing faster than ever. Whole industries, as in Australia, are affected negatively due to a lack of people going to face-to-face conferences, entertainment venues and sporting events.

Furthermore, businesses and peoples’ spending habits are changing; even as we write this report. The volume of consumer sales of discretionary goods and services is volatile, ranging from the positive to the negative, depending on the business needs. Businesses are now also in many cases, currently reducing their investment spend. Furthermore, much of their current spending is now on compliance, and/or on changing their work structures, as they try to survive in a COVID world.

Government and Other Support

Short term support by governments, creditors and debt collectors is just that, short term. When the day comes to start paying the bills and deferred debts again, that is when the real problems will surface.

A number of government support programs are coming to an end in Australia as it is suspected they also will in other countries. The current level of support is becoming increasingly unsustainable and will have many negative consequences in the years ahead. Of course, there are those countries which will continue to print money and offer support, irrespective of costly repercussions to their citizens over the long term.

Government initiatives are still being fine-tuned as governments try to keep specific businesses and industries viable and people in jobs. Unfortunately, reviewing what is on offer, many of these initiatives will arrive too late, or be insufficient to keep businesses alive and their employees in work. Alternatively, many of the initiatives will be wasted on the wrong targets.

Lack of Urgency

Government handouts, rental deferrals and a stay on insolvency requirements are also coming to an end in Australia. However, there is another bogyman sitting on the sidelines which has also taken a benevolent view of payments to date. The ATO (Australian Taxation Office) may have been willing to assist in the short term. We note however, they are already advertising that businesses will need to start paying their various taxes, employee superannuation, and BAS etc.

The time for all zombie and battling businesses to get their affairs and commitments in order, is quickly running out. Even worse for their suppliers, is the fact that any existing debts at the time these businesses close are unlikely to be paid, plus there is the likelihood that insolvency administrators will seek the return of preferential payments made before the closure.

It would appear the situation above will be similar in many other countries, which will also negatively affect global exporters.

In spite of the above factors, it also appears there still seems to be little urgency from business people, in any country, to try and protect themselves and their businesses proactively.

The business people who are aware and trying to do something, fall in to two camps.

The first camp is those with a strong emphasis on proactively (i) collecting debts owed to them, (ii) clear debts they owe and (iii) build up cash reserves. More importantly, they are enacting strategies that show no sign they are in a panic. In doing so, they are also sending signals they are operating within normal business terms and not receiving preferential payments. In this operating mode, they are protecting their business and financial reputations.

In the second camp are those who suddenly realise that their business is in trouble. In an effort to survive, these businesses exhibit signs of panic. As a result, they rush around collecting all the debt they can, in such a clumsy manner, it sends out the message they are in trouble. In addition, they are also frequently forgetting the principles of good business. As a result, their day to day operations become sloppy and inefficient.

It is the second camp of businesses which get in to the most trouble through a failure to quickly and professionally collect their outstanding debts, many of which may be subject to preferential payment action. Even if these businesses survive, their reputation and standing with their customers is usually tarnished for many years.

Changes in the Major Cities

As lock downs continue, border closures go up, as a result, there is a serious lack of tourist and visitors. The major cities of the world therefore are desperate to avoid becoming ghost towns. It is only now that city counsellors are starting to realise, that the “old normal” has gone, at least for the short to medium term. Consequently, the people who mean well and are still advocating businesses to return to the city as if nothing has changed, are potentially wasting their time and money.

Trends from overseas cities show they are being reconfigured in many different ways by their remaining citizens. A number of changes are positive and others are negative. Whilst a large number of people are permanently leaving the city altogether, others are moving to different areas within their cites.

Business people, city counsellors and governments are wanting people to work and shop again in their major cities. Unfortunately, due to the constant lockdowns, everybody is losing confidence and businesses are closing for good. With major tourist groups and conferences not returning in the short-term, this will exacerbate the situation even more.

Consequently, it is unlikely that major cities will be attractive to the new social infrastructure type businesses for some time. This begs the question: “How do the major cities survive intact in the meantime until the people return?” It appears until city counsellors and business people change their vision and focus on reconfiguring their cities, many of their efforts will be in vain.

Pent Up Demand Recovery

The theory is, as people are saving and not spending for many different and logical reasons, the pent-up demand for buying will soon see the retail and consumer business environment recover.

Unfortunately, this theory is not always backed up by the real world. Yes, as lock-downs have been periodically lifted, there has been some increased spending. However, it has levelled off since the traditional Christmas period. With new lock-downs around the world, and doubts, by many, on the effectiveness of vaccines, businesses and people have stopped spending again. Due to the inconsistent information, the uncertainty continues.

No one is sure of anything anymore, or what the new normal will look like. People who are naturally conservative, and/or frightened of the future, are saving, paying down debt and only spending money on the essentials, or perhaps occasionally on a few small luxuries.

Whilst there may be pent-up demand, we know much of the money provided by government handouts has been already used-up on clearing debts, or just surviving. We also know that money spent on drugs goes on unabated, and increased expenditure on alcohol and gambling is continuing.

We also hear evidence of large quantities of money being lost to scammers and fraudsters.

In another sign of the times, the share market seems to be the new casino-of-choice as people. Currently we note many young, first-timers, or the naïve, think that the share market always goes up. Already we are hearing of losses as people speculate on which direction the stocks will move. Goodness knows how many will suffer huge losses, should the markets fall again to any major degree.

So where is all the money going to come from to fund the pent-up demand theory?

Destruction of Trust

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

These factors were presented earlier and it appears, those that we rely upon to lead the way, are still avoiding their moral and civic responsibilities. As a result, people are not heeding to the demands, (and requests) for understanding, or the statements that “… all is good and they have all the answers.” Which they clearly do not!

Other Factors

There is sound evidence that many 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, or when those workers seek a return to work.

At the end of February, businesses still cannot find employees unless they are paid “X” dollars above government handouts. In addition, there are many people who are just not prepared to do the work which is available. because it is “too hard”, or they are not prepared to venture into regional areas of Australia – where there’s plenty of work.

A number of unions still do not appear to accept that the recession, or, at least, a very bad business downturn is with us. We still see their continued demands for more and more benefits and wages. As a result, many of the unions which are demanding more increases, are working against the employment, and benefit of their members. In the case of many smaller businesses, there is simply no profit leftover to pay these additional demands. Many business owners therefore continue to look for other ways and methodologies to operate in hope of producing a PROFIT.

It is therefore pleasing to see against the above trends, that there is an initiative currently being work out. We have sighted evidence that a new employment arrangement is being brokered with the unions to help small businesses. Whether it eventuates, and/or amounts to anything is another matter entirely. We all live in hope that it will become a reality.

The story of the two banks continues to play out with a great disconnect between the central banks and retail banks. The central banks are advocating debt and spending is good, saving is bad. While, on the other hand, the retail banks are saying, because there are so many risks, and interest rates being so low, they require security to lend.

The Positive Aspects noted from December to February

Governments have continued to offer what they can to support people who have lost their jobs, or to keep businesses from closing down.

We must also applaud all the organisations and people who continue to support those less fortunate, or lonely, or those which have lost their employment. It is pleasing to also note the efforts of local charities which continue to try and support the less well off. Sporting organisations are also trying to look after their members and supporters.

Unfortunately, many organisations which support others are doing so without any support from governments, although they (Governments) also benefit indirectly from the work of these organisations.

There are inspiring stories in the media of businesses and individuals from all walks of life and circumstances, which have adapted and are creating new products and services. The range of 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 and adapting to 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. There are many interesting stories continuing to show that new businesses are being created out of old ones, or new innovations.

One major benefit of the lockdowns and state closures, has been an increase in visitors to the regional areas to support local businesses. As more people leave the big cities, and with increased numbers of people visiting regional areas, hopefully there will be a better standard of support services in these areas. Of course, this will be one of the major conundrums for all governments. Do they continue with infrastructure spending that benefits major cities, or do they spend on the regional areas which see an influx of people?

In Summary

There have been a small number of positive aspects which continue to give businesses hope from the December-February period. There has been an increase in consumer spending as people are now permitted to leave their homes more often.

Regretfully, we continue to see the worst of behaviours of the people and organisations which we rely on and/or, look up to for guidance.

Many business people are still in denial of their situations, and therefore, are taking little proactive action to restore, or confirm, their payment and financial reputations. As a result, with the lack of business acumen and urgency, the ongoing viability of many businesses is in question. Undoubtedly, with many people still seeing no light at the end of the tunnel and the ongoing negative projections of the future, this bodes ill for all of us in the future.

The real problem we all face, is that apart from those who 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, with few positive factors visible, the truth is that the negative factors are slowly and actually multiplying.

If you have any questions, require any further information or need support, contact kim@creditmatters.com.au or telephone +61 3 9886 6707.  Ah: +61 3 9802 0608, or Mb: 0411 649 261.

Introduction from September to November 2020

Another three months have passed in 2020, where the COVID19 virus and its affects have continued to dominate nearly 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 and South Australia are perfect examples which had appeared to be clear of the virus for some time.

Many of the negative issues which are yet to be felt, remain the same as for the previous period of May to August and are repeated again below.

The Downside of the September to November period

Business

It is still apparent, that few business people have realised that the processes of doing business have changed because of the recession. Many seem to be fooled that all is well because retail and housing sales are improving.

There are many zombie companies which are still hanging on because of reduced rates, the slow payment of suppliers, government handouts, restrictions on debt collection and a different approach to short-term relief on insolvency laws and trading insolvently.

As a result, we are yet to see many businesses entering insolvency administration and a follow up of preferential payments by insolvency administrators.

Unfortunately, many more businesses may still go out of business because of external factors they cannot control, including:

  1. the removal of government support;
  2. the realisation that many of their customers will not be coming back and as a result, their business has little future;
  3. on-going supplier and customer frauds due to a desperate attempt to “sell” their way out of insolvency;
  4. the removal of creditor’s rights in some jurisdictions to pursue legal costs even where there is a legally binding contract allowing such action;
  5. preferential payments to be repaid or defended in the future, etc.
  6. living in the hope of finding a “white-knight” investor to save them from insolvency and prevent them losing everything, etc.

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.

Further government initiatives are still being announced as governments try desperately to keep businesses solvent and people in jobs. Unfortunately, reviewing what is on offer, it appears many of these initiatives will arrive too late to save many businesses, and their employees, or be will be wasted on the wrong purposes.

Lack of Urgency

In spite of the above factors, it also appears that there is no urgency in the business community to protect their financial and payment reputations. We still notice slow payments, a lack of responses to enquiries regarding outstanding invoices and few “catch up” payments to restore payment reputation.

The engagement of professional employees coupled with the implementation of sophisticated strategies, are still missing within many of these same businesses. Again, these factors are another component which may have helped 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. 

It is only now that business people and governments are starting to tell people it is okay to work and shop again in the cities. However, many workers are either restricted from returning, or do not want to return. When you cannot force people to return to work in the cities, these calls will have limited success, especially when people are afraid or have enjoyed working remotely. It also appears, worker numbers are going to be limited until well into 2021 as businesses struggle to operate in a COVID safe way.

Furthermore, major tourist groups will not be returning in the short-term, and maybe still not at all in 2021. Unfortunately, neither will many major events such as conferences, sporting and artistic be held until late in 2021 with their usual crowds unless an effective vaccine can be found.

Many businesses are also still refusing to open because of government regulations regarding numbers and social distancing. These restrictions are impacting on the viability of the business who see no point in opening, only to go broke.

The question therefore remains: “How do the major cities survive intact in the meantime until the people return?”

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, past evidence suggests much of the money not already spent on consumables or additional work or household goods, has been used for other purposes.

Nevertheless, there has been a positive turnaround in spending as restrictions are being lifted and interstate barriers come down. Whether this spending is sustainable after Christmas is another story.

Destruction of Trust

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

These factors were presented previously and it appears, those that we rely upon to lead the way, are still avoiding their responsibilities. As a result, people are not heading the demands and requests for understanding, or the statements that “… all is good and they have all the answers.”

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.

At the end of November, we still hear of stories where businesses cannot get employees unless they are paid above “X” dollars above government handouts. In addition, there are many people who are just not prepared to do the work which is available because it is “too hard”, or they are not prepared to go where there is plenty of work in regional areas of Australia.

A number of unions still do not appear to understand or accept that recession, or at least a very bad business downturn is with us. We still see their demands for more and more benefits and wages. In the case of many smaller businesses, there is simply no money left to pay these demands.

As a result, the demands for more, work against the employment of people. Many businesses owners will not forget and therefore continue to look for other ways and methodologies to operate their businesses for a PROFIT.

The story of the two banks continues to play out with a great disconnect between the central banks and retails banks. The central banks are advocating debt and spending is good, saving is bad. The retails banks are saying on the other hand, because there are so many risks, and interest rates are so low, we require security to lean. 

The Positive Aspects noted from September to November

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 their 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 and adapting to 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. There are many interesting stories continuing to show that new businesses are being created out of old ones, or new innovations.

Towards the end of November, we have seen various states starting to reduce the lock-downs and people are able to go about their business more freely. There has been a nice lift in spending in many areas towards the end of November as a result. 

In Summary

There have been few bright spots showing up through the September-November period, particularly with increased consumer spending as people are now allowed to go out more. However, we still 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 negativitve 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 kim@creditmatters.com.au or telephone +61 3 9886 6707.  Ah: +61 3 9802 0608, or Mb: 0411 649 261.

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

Business

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 kim@creditmatters.com.au 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 kim@creditmatters.com.au, or telephone 61 3 9866 6707, AH: 61 3 9802 0608 – mobile 041106429 261