Credit Management
Black Swans and Dominos
– the bad debts we couldn’t predict By Dafydd Owen MICM ACIB*
Dafydd Owen MICM ACIB
Imagine your dream customer for a moment. Maybe it is a large, stock exchange listed, multi-national company with significant government contracts. Possibly a global energy company. It might even be one of the world’s largest investment banks with over 25,000 staff. Who wouldn’t want to sell to businesses like these? What could possibly go wrong? Well let’s put Carillion, Enron and Lehman Brothers to one side for a moment. When Nassim Taleb popularised the term “Black Swan” in his 2007 book he outlined three key ingredients; it is so rare that no one could have even anticipated it, its effects are catastrophic, and it is regarded as predictable in hindsight. We’ve lived through more than our fair share of Black Swans in recent years and the lessons have been out there for all of us to learn. After the big event comes all the small ripple effects. The failure of
Lehman Bros has been estimated to have directly caused at least 75 distinct bankruptcies. Each of those businesses left a trail of unpaid debts in its wake. The bush fires of 2019-20 saw government and state cash diverted from bus refurbishment projects to rebuilding schools and communities. Our old friend Covid saw flocks of Black Swans impacting fruit harvests, travel businesses and so much more. Credit control is often an under appreciated art in the commercial world. AICM members take pride in their ability to assess a customer and onboard them efficiently and safely to protect the cashflow of their businesses. We use credit reports to look backwards at payment history, we draw on longstanding reputations to gauge their willingness to pay, on time, every time. We make a reasonable stab at their ability to pay based on their record of settling past invoices and other suppliers.
“The failure of Lehman Bros has been estimated to have directly caused at least 75 distinct bankruptcies.”
18 CREDIT MANAGEMENT IN AUSTRALIA • January 2022
