Managing the risks

Australian consumers are showing increasing signs of concern about the future and are starting to turn to credit to purchase items that may not be as affordable if they wait until the threat of great big new taxes hits their homes.

An increased majority of Australians – 61% – (up 7%, and the highest since January 8/9, 2011) say “now is a good time to buy” major household items compared to 16% (down 1%) that say now is a “bad time to buy”.

Gary Morgan says, “Consumer Confidence is virtually unchanged at 115.6 this week with small falls in confidence about personal financial situations offset by a large rise in Australians saying now is a good time to buy major household items.”

This turbulent environment should have every smart company undertaking an effective risk management strategy that checks on the credit rating of their major customers, reviews terms of trade and closely examines credit card authorisation.

Senior managers should pay strict attention to both credit and debt collection processes rather than find out too late that sales do not represent consistent cashflow. The big banks are looking for small business loans to make up for a decline in new home lending and are going to be very supportive of smart companies that have paid attention to forecast payback of outstanding debts. Falls in their own default levels are delivering their record profits.

A study by The Credit Research Foundation supports this contention, revealing that credit management will evolve into a whole of risk management responsibility for business executives. This means that risk management will play a central role in developing and managing credit to new customers, cash forecasting and global risk.

The study also found that the risk manager will have more involvement in a wide range of functions, many of which would currently be considered non-traditional processes including dispute resolution, purchaser analysis, order fulfillment and cash forecasting.

A recent Dun & Bradstreet survey found that nearly 20% of Australian businesses believe they’ve been approached by fraudsters seeking to acquire goods they have no intention of paying for. Many of these executives did not realise they had become a victim of fraud until after the goods or services had been supplied. Australian Payments Clearing Association reveal that 44.5 cents in every $1,000 spent on credit cards is linked to fraud – a 20% increase since 2006.

In Australia today fewer than 10% of transactions are carried out in bank branches as ATM and EFTPOS. transactions, telephone and online banking have largely replaced traditional methods of interacting with credit providers. These changes have resulted in the development of increasingly sophisticated methods of fraud that have dramatically altered the risk landscape.

Today’s fraudsters select their victims very carefully, targeting high net worth individuals with incomes over $2,500 per week. Their focus has shifted from goods to identification details and as a consequence, the market for stolen goods such as electronics and jewellery has diminished, replaced by a market hungry for personal information.

In addition, key legislative risks that small business owners must respond to are the Anti-Money Laundering and Counter Terrorism Financing Act managing currency exchange variations, product development, responsibilities associated with acting as a financial adviser to the customer and changes to the Privacy Act.

Changes to Australia’s legislative environment will significantly impact the role of the risk manager in the coming years. Credit managers will be required to develop and implement appropriate strategies and processes that enable their organisation to meet their legislative requirements and mitigate risk.

Attention to risk management therefore needs to be seen as a bridging strategy to keep the company in good shape until consumers convert savings into new home purchases, home renovations and discretionary spending later in the year.

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Dr Colin Benjamin is an entrepreneurship and strategic thinking consultant at Marshall Place Associates, which offers a range of strategic thinking tools that open up a universe of new possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship. Colin is also a member of the global Association of Professional Futurists.