1 00:00:03,990 --> 00:00:06,930 Sean Aylmer: Welcome to the Fear and Greed Business Interview. I'm Sean Aylmer. 2 00:00:06,990 --> 00:00:09,840 Sean Aylmer: Interest rate hikes are doing what they're supposed to, cool 3 00:00:09,840 --> 00:00:13,710 Sean Aylmer: the economy and help get inflation under control. But what's 4 00:00:13,710 --> 00:00:17,400 Sean Aylmer: it like for businesses actually on the ground? My guest 5 00:00:17,400 --> 00:00:19,980 Sean Aylmer: today has quite a different insight into the state of 6 00:00:19,980 --> 00:00:22,770 Sean Aylmer: the economy because his job is to help protect other 7 00:00:22,770 --> 00:00:26,849 Sean Aylmer: businesses from bad debts. Kirk Cheeseman is the group managing 8 00:00:26,849 --> 00:00:30,509 Sean Aylmer: director at National Credit Insurance or NCI. Kirk, welcome to 9 00:00:30,509 --> 00:00:31,199 Sean Aylmer: Fear and Greed. 10 00:00:31,650 --> 00:00:32,189 Kirk Cheeseman: Thank you, Sean. 11 00:00:32,969 --> 00:00:37,140 Sean Aylmer: Firstly, just tell us about NCI, National Credit Insurance and 12 00:00:37,170 --> 00:00:40,620 Sean Aylmer: how you gather your input into or your view of 13 00:00:40,620 --> 00:00:42,330 Sean Aylmer: the economy through what you do. 14 00:00:42,990 --> 00:00:46,560 Kirk Cheeseman: Sure. Well, NCI is a specialist trade credit insurance broker, 15 00:00:46,590 --> 00:00:50,070 Kirk Cheeseman: and like you said, we assist businesses in protecting themselves 16 00:00:50,490 --> 00:00:53,638 Kirk Cheeseman: against a bad debt. But with that, it comes with 17 00:00:53,639 --> 00:00:56,400 Kirk Cheeseman: a lot of good intel and information that we receive 18 00:00:56,400 --> 00:01:01,470 Kirk Cheeseman: on overdue amounts, if businesses are paying on time, repayment 19 00:01:01,470 --> 00:01:05,969 Kirk Cheeseman: plans, insolvencies, collection actions, and with that data we can 20 00:01:05,969 --> 00:01:09,209 Kirk Cheeseman: form a good view of how businesses are traveling on 21 00:01:09,209 --> 00:01:11,610 Kirk Cheeseman: the ground in the trade credit arena. 22 00:01:12,300 --> 00:01:16,650 Sean Aylmer: Okay, so with that in mind and the macro economic 23 00:01:16,650 --> 00:01:19,200 Sean Aylmer: backdrop that we've seen over the last week, we've had 24 00:01:19,200 --> 00:01:22,380 Sean Aylmer: a slower retail numbers, we had inflation coming off, certainly 25 00:01:22,740 --> 00:01:25,080 Sean Aylmer: job losses or at least the unemployment rate is still 26 00:01:25,080 --> 00:01:28,139 Sean Aylmer: relatively low. So let's not overstate that, but certainly the 27 00:01:28,410 --> 00:01:31,800 Sean Aylmer: labor market's slowing. That's a macro picture. Kirk, what are 28 00:01:31,800 --> 00:01:34,050 Sean Aylmer: you seeing? What do you think is happening on the ground? 29 00:01:34,920 --> 00:01:38,220 Kirk Cheeseman: Well, personally, I still think we're in a washout phase 30 00:01:38,220 --> 00:01:41,639 Kirk Cheeseman: from the pandemic period. So if I first take you 31 00:01:41,639 --> 00:01:46,859 Kirk Cheeseman: back to March, 2020, when that occurred, everybody thought every 32 00:01:46,859 --> 00:01:50,280 Kirk Cheeseman: business in Australia was going to go broke with lockdowns 33 00:01:50,280 --> 00:01:52,830 Kirk Cheeseman: and not being able to operate in a perfect world. 34 00:01:52,830 --> 00:01:56,160 Kirk Cheeseman: So there was a lot of concern about businesses and 35 00:01:56,160 --> 00:01:59,219 Kirk Cheeseman: their ability to pay. And of course we had businesses 36 00:01:59,219 --> 00:02:04,259 Kirk Cheeseman: go broke like Virgin and entertainment businesses, food and restaurants 37 00:02:04,320 --> 00:02:07,980 Kirk Cheeseman: were really struggling through that lockdown period. But then the 38 00:02:07,980 --> 00:02:10,710 Kirk Cheeseman: government rode in on their horse and were the white 39 00:02:10,710 --> 00:02:14,040 Kirk Cheeseman: knight for that famous word stimulus and they put lots 40 00:02:14,040 --> 00:02:18,570 Kirk Cheeseman: of money into the economy, job keeper, job seeker, home 41 00:02:18,570 --> 00:02:24,029 Kirk Cheeseman: builder, which created unfortunately, well, a good element for businesses, 42 00:02:24,029 --> 00:02:26,700 Kirk Cheeseman: but it did create a false economy, which we are 43 00:02:26,700 --> 00:02:27,660 Kirk Cheeseman: paying for now. 44 00:02:28,500 --> 00:02:31,290 Sean Aylmer: So when you say wash out, what we're seeing is 45 00:02:31,290 --> 00:02:34,800 Sean Aylmer: not necessarily a reflection of exactly what's happening today, it's 46 00:02:34,800 --> 00:02:36,900 Sean Aylmer: actually a reflection of what's happened in the last four 47 00:02:36,900 --> 00:02:37,409 Sean Aylmer: years or so? 48 00:02:38,008 --> 00:02:43,290 Kirk Cheeseman: Yeah, absolutely. So with the stimulus and protection mechanisms relating 49 00:02:43,290 --> 00:02:49,169 Kirk Cheeseman: to insolvencies and bankruptcies, we saw insolvencies halve during that 50 00:02:49,169 --> 00:02:54,059 Kirk Cheeseman: pandemic period. And of course the natural elements of businesses 51 00:02:54,059 --> 00:02:56,610 Kirk Cheeseman: we're going to have insolvencies and people who are paying 52 00:02:56,610 --> 00:02:59,699 Kirk Cheeseman: on time and can't pay on time, and that essentially 53 00:02:59,760 --> 00:03:03,690 Kirk Cheeseman: ceased during '20 and '21. So at the backend of 54 00:03:03,720 --> 00:03:07,590 Kirk Cheeseman: '22, we saw businesses starting to struggle and of course 55 00:03:07,590 --> 00:03:12,178 Kirk Cheeseman: all those elements you talked about, cost elements, inflation, labor 56 00:03:12,840 --> 00:03:17,010 Kirk Cheeseman: shortages, increasing costs, they all played a part in all 57 00:03:17,010 --> 00:03:19,169 Kirk Cheeseman: of a sudden having all this extra cash through the 58 00:03:19,169 --> 00:03:23,220 Kirk Cheeseman: stimulus to not having that. And that's now flowing through 59 00:03:23,220 --> 00:03:27,599 Kirk Cheeseman: and washing out. So we're seeing businesses like Godfreys become 60 00:03:27,599 --> 00:03:32,370 Kirk Cheeseman: insolvent and that's due to during lockdowns, people bought lots 61 00:03:32,370 --> 00:03:35,940 Kirk Cheeseman: of kettles and toasters and coffee machines and now they 62 00:03:35,940 --> 00:03:39,540 Kirk Cheeseman: don't need them. So we're seeing that wash through the 63 00:03:39,540 --> 00:03:44,099 Kirk Cheeseman: economy and now we're seeing insolvencies back to normal levels 64 00:03:44,099 --> 00:03:47,219 Kirk Cheeseman: or even higher than normal levels and also a lot 65 00:03:47,219 --> 00:03:51,420 Kirk Cheeseman: of stress in the business world because collection actions and 66 00:03:51,839 --> 00:03:55,560 Kirk Cheeseman: ATO requesting for taxes to be paid back now is 67 00:03:55,560 --> 00:03:56,670 Kirk Cheeseman: really putting the heat on. 68 00:03:57,690 --> 00:04:00,540 Sean Aylmer: Okay. Are there any particular sectors that you can highlight? 69 00:04:00,540 --> 00:04:03,929 Sean Aylmer: You just talked about Godfreys, the vacuum cleaner retailer, which 70 00:04:04,050 --> 00:04:06,929 Sean Aylmer: has gone into voluntary administration and some of the stores 71 00:04:06,929 --> 00:04:08,550 Sean Aylmer: are expected to shut in the next week or so. 72 00:04:08,610 --> 00:04:13,740 Sean Aylmer: Is it those goods style companies that are struggling more 73 00:04:13,740 --> 00:04:16,320 Sean Aylmer: than services or what's the temperature there? 74 00:04:17,040 --> 00:04:22,259 Kirk Cheeseman: Yeah, we typically see the leaders of the insolvencies relating 75 00:04:22,260 --> 00:04:26,009 Kirk Cheeseman: around the building construction sector and of course with home 76 00:04:26,009 --> 00:04:30,628 Kirk Cheeseman: builder there was this massive upflow of building approvals. Then 77 00:04:30,960 --> 00:04:33,810 Kirk Cheeseman: the builders had a lot of issues because of labor 78 00:04:33,810 --> 00:04:38,760 Kirk Cheeseman: costs and delays in supplies. So that's washing through now. 79 00:04:39,000 --> 00:04:41,969 Kirk Cheeseman: So the building and construction industry typically lead the way when 80 00:04:41,969 --> 00:04:46,229 Kirk Cheeseman: we see actions or problems with insolvencies. And with consumer 81 00:04:46,230 --> 00:04:50,039 Kirk Cheeseman: spend slowing, like you mentioned, yes, we're starting to see 82 00:04:50,130 --> 00:04:53,700 Kirk Cheeseman: the retailers undertaking some pressure. And even in the finance 83 00:04:53,700 --> 00:04:58,559 Kirk Cheeseman: world where people were funding elements or cashflow, we're starting 84 00:04:58,559 --> 00:05:01,050 Kirk Cheeseman: to see labor hire. We're starting to see issues in 85 00:05:01,110 --> 00:05:02,969 Kirk Cheeseman: those sectors also. 86 00:05:03,690 --> 00:05:05,460 Sean Aylmer: Stay with me, Kirk, we'll be back in a minute. 87 00:05:11,640 --> 00:05:14,760 Sean Aylmer: I am speaking to Kirk Cheeseman, group managing director at 88 00:05:14,760 --> 00:05:19,409 Sean Aylmer: NCI. That's National Credit Insurance. Are there any sectors that 89 00:05:19,410 --> 00:05:21,029 Sean Aylmer: have sort of gone through it and come out of 90 00:05:21,029 --> 00:05:22,769 Sean Aylmer: it and looking better? 91 00:05:23,850 --> 00:05:28,020 Kirk Cheeseman: Yeah, absolutely. We had many clients who, like I said, 92 00:05:28,020 --> 00:05:30,270 Kirk Cheeseman: in March, 2020, went, " Oh my God, this is going 93 00:05:30,270 --> 00:05:33,690 Kirk Cheeseman: to be a real problem." And then actually they had 94 00:05:33,719 --> 00:05:38,849 Kirk Cheeseman: high demand, price increases, so they saw activity and turnovers 95 00:05:38,849 --> 00:05:43,830 Kirk Cheeseman: increase that built up their cashflow. People working from home, 96 00:05:44,760 --> 00:05:48,630 Kirk Cheeseman: the tech or IT, laptops were bought at a high 97 00:05:48,630 --> 00:05:52,620 Kirk Cheeseman: rate. So there was this massive spike of demand and 98 00:05:52,620 --> 00:05:57,420 Kirk Cheeseman: those businesses did extremely well. Now, we're seeing that soften, 99 00:05:57,420 --> 00:06:00,150 Kirk Cheeseman: those sectors and that's where they don't have the same 100 00:06:00,150 --> 00:06:03,150 Kirk Cheeseman: level of cashflow, so they're having to adjust to this 101 00:06:03,150 --> 00:06:07,140 Kirk Cheeseman: washout period that's different from when they had that demand 102 00:06:07,140 --> 00:06:09,360 Kirk Cheeseman: and some support mechanisms from the government. 103 00:06:10,290 --> 00:06:12,748 Sean Aylmer: When do you think we get back to normal, if 104 00:06:12,750 --> 00:06:13,860 Sean Aylmer: there is such a thing as normal? 105 00:06:14,279 --> 00:06:16,529 Kirk Cheeseman: Yeah, that's a very good question. I mean, we're still 106 00:06:16,529 --> 00:06:22,049 Kirk Cheeseman: seeing collection actions really high. So in 2023 versus 2020, 107 00:06:22,050 --> 00:06:27,299 Kirk Cheeseman: they're up 247%. So businesses aren't so forgiving at the 108 00:06:27,300 --> 00:06:29,820 Kirk Cheeseman: moment. And then also the ATO putting on some pressure 109 00:06:29,820 --> 00:06:32,849 Kirk Cheeseman: with they have to collect their money, they're waiting for 110 00:06:33,240 --> 00:06:37,230 Kirk Cheeseman: taxes, which they didn't put pressure on for businesses to 111 00:06:37,230 --> 00:06:39,359 Kirk Cheeseman: pay during the pandemic period, which is the right thing 112 00:06:39,360 --> 00:06:41,849 Kirk Cheeseman: to do. But now obviously they're putting the heat on 113 00:06:42,300 --> 00:06:47,039 Kirk Cheeseman: of businesses paying those taxes back. I personally think at 114 00:06:47,040 --> 00:06:50,309 Kirk Cheeseman: the end of 2024 or the beginning of 2025, we'll 115 00:06:50,309 --> 00:06:54,269 Kirk Cheeseman: probably start seeing the adjustment of the washout flow through 116 00:06:54,270 --> 00:06:57,539 Kirk Cheeseman: and businesses will have that time to correct their labor 117 00:06:57,540 --> 00:07:02,010 Kirk Cheeseman: forces, change their pricing mechanisms, see the demand go back 118 00:07:02,010 --> 00:07:05,130 Kirk Cheeseman: to sort of normal rather than these spikes and get 119 00:07:05,130 --> 00:07:08,880 Kirk Cheeseman: back to their normal cashflow projections. So I think at 120 00:07:08,880 --> 00:07:11,219 Kirk Cheeseman: the end of this year, possibly the beginning of next 121 00:07:11,219 --> 00:07:13,950 Kirk Cheeseman: year, we'll see normal levels again. 122 00:07:14,940 --> 00:07:17,280 Sean Aylmer: Is this good or bad for National Credit Insurance? I'm 123 00:07:17,280 --> 00:07:18,840 Sean Aylmer: trying to decide. I mean, it's kind of good because 124 00:07:18,840 --> 00:07:21,540 Sean Aylmer: people are probably thinking about the need to have a 125 00:07:21,540 --> 00:07:24,360 Sean Aylmer: safety net there as a business. Not so good if 126 00:07:24,360 --> 00:07:25,770 Sean Aylmer: people aren't paying back. 127 00:07:26,639 --> 00:07:30,990 Kirk Cheeseman: Yeah, absolutely. I mean, for us, obviously the concern when 128 00:07:31,110 --> 00:07:33,090 Kirk Cheeseman: the pandemic hit was that there was going to be 129 00:07:33,090 --> 00:07:36,060 Kirk Cheeseman: a lot of businesses go broke and then what would 130 00:07:36,060 --> 00:07:38,730 Kirk Cheeseman: the insurance market actually do and react to that. But 131 00:07:38,730 --> 00:07:42,720 Kirk Cheeseman: it's been extremely stable. Obviously, we didn't see the masses 132 00:07:42,780 --> 00:07:46,080 Kirk Cheeseman: of levels of insolvencies. And yes, you are right, people 133 00:07:46,080 --> 00:07:49,800 Kirk Cheeseman: are thinking about protecting themselves more and more. In Europe, 134 00:07:50,250 --> 00:07:53,640 Kirk Cheeseman: this product is used a lot. In Australia, it's still 135 00:07:53,640 --> 00:07:57,389 Kirk Cheeseman: very... It's an emerging product still, but it's good for 136 00:07:57,389 --> 00:07:59,700 Kirk Cheeseman: us in the way that people are thinking about protecting 137 00:07:59,730 --> 00:08:03,239 Kirk Cheeseman: one of their largest assets being their debtors ledger. But 138 00:08:03,240 --> 00:08:05,850 Kirk Cheeseman: also, it is a great tool for growth as well. 139 00:08:05,850 --> 00:08:09,600 Kirk Cheeseman: So if people are looking to deal with more customers 140 00:08:09,600 --> 00:08:12,750 Kirk Cheeseman: or look at new zones or new products, they can 141 00:08:12,750 --> 00:08:16,620 Kirk Cheeseman: use this as getting more credit in able to expand 142 00:08:16,620 --> 00:08:19,049 Kirk Cheeseman: their businesses. It can work both ways, both as a 143 00:08:19,049 --> 00:08:22,050 Kirk Cheeseman: protection mechanism and to grow their business. 144 00:08:23,010 --> 00:08:26,220 Sean Aylmer: Kirk, I've understood everything you've said until that very last 145 00:08:26,220 --> 00:08:31,050 Sean Aylmer: bit, to grow their businesses. Is this because their debtors 146 00:08:31,050 --> 00:08:34,680 Sean Aylmer: are insured, so their lenders look at that and say, " 147 00:08:34,920 --> 00:08:38,879 Sean Aylmer: Hey, they're guaranteed to get X in the dollar or 148 00:08:38,880 --> 00:08:41,070 Sean Aylmer: the dollar or whatever it is, therefore we'll lend them 149 00:08:41,070 --> 00:08:42,510 Sean Aylmer: more money." Is that kind of how that works? 150 00:08:42,870 --> 00:08:45,750 Kirk Cheeseman: Absolutely, Sean, you're spot on. So you did understand very 151 00:08:45,750 --> 00:08:46,500 Kirk Cheeseman: well, and- 152 00:08:46,500 --> 00:08:47,429 Sean Aylmer: I did understand. 153 00:08:48,480 --> 00:08:51,989 Kirk Cheeseman: People can use their debtors ledger as a securitization tool 154 00:08:51,990 --> 00:08:52,920 Kirk Cheeseman: and go to their banks and say- 155 00:08:52,920 --> 00:08:53,491 Sean Aylmer: Yeah, of course. 156 00:08:53,491 --> 00:08:56,819 Kirk Cheeseman: ... " Hey, you become a secured party to our debtor's 157 00:08:56,820 --> 00:09:00,750 Kirk Cheeseman: ledger, it's insured. If something goes wrong, we'll get 90% 158 00:09:01,170 --> 00:09:04,020 Kirk Cheeseman: of what we're owed back and you can be a 159 00:09:04,020 --> 00:09:07,140 Kirk Cheeseman: beneficiary of that," and that makes their funders happier. 160 00:09:08,220 --> 00:09:10,679 Sean Aylmer: You mentioned that it's bigger in Europe than Australia. Now, 161 00:09:10,679 --> 00:09:14,070 Sean Aylmer: I've never really run a business that had invoices coming 162 00:09:14,070 --> 00:09:16,770 Sean Aylmer: in like that, so I'm totally out of my realm 163 00:09:16,770 --> 00:09:20,160 Sean Aylmer: of experience here, Kirk. In Europe though, is it more 164 00:09:20,160 --> 00:09:22,590 Sean Aylmer: about growing the business or is it just like the 165 00:09:22,590 --> 00:09:26,520 Sean Aylmer: European economy generally has been a lot tougher than Australia 166 00:09:26,520 --> 00:09:29,580 Sean Aylmer: or the US for years, is probably fair to say? 167 00:09:30,000 --> 00:09:32,429 Kirk Cheeseman: I probably have to go back to historical times here. 168 00:09:32,429 --> 00:09:38,550 Kirk Cheeseman: So credit insurance established itself through export trade, international trade, 169 00:09:38,550 --> 00:09:41,970 Kirk Cheeseman: and because businesses didn't know who they might be trading 170 00:09:41,970 --> 00:09:44,460 Kirk Cheeseman: with or weren't so sure about who they were trading 171 00:09:44,460 --> 00:09:46,979 Kirk Cheeseman: with in other countries, they'd buy this credit insurance for 172 00:09:46,980 --> 00:09:51,360 Kirk Cheeseman: protection. So it was a very European type product. And 173 00:09:51,809 --> 00:09:56,309 Kirk Cheeseman: it came into Australia. It's growing and now many businesses, 174 00:09:56,309 --> 00:10:00,600 Kirk Cheeseman: whether it's SMEs or multinationals, use trade credit insurance as 175 00:10:00,600 --> 00:10:02,220 Kirk Cheeseman: a protection tool for domestic trade. 176 00:10:02,940 --> 00:10:05,520 Sean Aylmer: Very interesting. Kirk, thank you very much for talking to 177 00:10:05,520 --> 00:10:06,209 Sean Aylmer: Fear and Greed. 178 00:10:06,660 --> 00:10:07,740 Kirk Cheeseman: My pleasure. Thanks, Sean. 179 00:10:08,160 --> 00:10:12,540 Sean Aylmer: That was Kirk Cheeseman, group managing director at NCI. That's 180 00:10:12,600 --> 00:10:15,750 Sean Aylmer: National Credit Insurance. This is the Fear and Greed Business 181 00:10:15,750 --> 00:10:18,000 Sean Aylmer: Interview. Join us every morning for the full episode of 182 00:10:18,000 --> 00:10:21,690 Sean Aylmer: Fear and Greed, Australia's best business podcast. I'm Sean Aylmer. 183 00:10:22,020 --> 00:10:22,649 Sean Aylmer: Enjoy your day.