AUSTRALIA’S MOST POPULAR BUSINESS PODCAST

Fear & Greed, Fear and Greed

Who’s paying bills, and who isn’t? Which sectors are in trouble, and which ones are holding up okay?

This is the real state of the economy, from a company who sees it first hand.

Kirk Cheesman, Group Managing Director at National Credit Insurance, or NCI, talks to Sean Aylmer about their unique insight into what it’s like for Aussie businesses right now.

Find out more: https://fearandgreed.com.au

See omnystudio.com/listener for privacy information.

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Sean Aylmer: Welcome to the Fear and Greed Business Interview. I’m Sean Aylmer.

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Sean Aylmer: Interest rate hikes are doing what they’re supposed to, cool

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Sean Aylmer: the economy and help get inflation under control. But what’s

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Sean Aylmer: it like for businesses actually on the ground? My guest

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Sean Aylmer: today has quite a different insight into the state of

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Sean Aylmer: the economy because his job is to help protect other

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Sean Aylmer: businesses from bad debts. Kirk Cheeseman is the group managing

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Sean Aylmer: director at National Credit Insurance or NCI. Kirk, welcome to

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Sean Aylmer: Fear and Greed.

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Kirk Cheeseman: Thank you, Sean.

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Sean Aylmer: Firstly, just tell us about NCI, National Credit Insurance and

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Sean Aylmer: how you gather your input into or your view of

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Sean Aylmer: the economy through what you do.

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Kirk Cheeseman: Sure. Well, NCI is a specialist trade credit insurance broker,

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Kirk Cheeseman: and like you said, we assist businesses in protecting themselves

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Kirk Cheeseman: against a bad debt. But with that, it comes with

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Kirk Cheeseman: a lot of good intel and information that we receive

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Kirk Cheeseman: on overdue amounts, if businesses are paying on time, repayment

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Kirk Cheeseman: plans, insolvencies, collection actions, and with that data we can

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Kirk Cheeseman: form a good view of how businesses are traveling on

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Kirk Cheeseman: the ground in the trade credit arena.

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Sean Aylmer: Okay, so with that in mind and the macro economic

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Sean Aylmer: backdrop that we’ve seen over the last week, we’ve had

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Sean Aylmer: a slower retail numbers, we had inflation coming off, certainly

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Sean Aylmer: job losses or at least the unemployment rate is still

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Sean Aylmer: relatively low. So let’s not overstate that, but certainly the

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Sean Aylmer: labor market’s slowing. That’s a macro picture. Kirk, what are

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Sean Aylmer: you seeing? What do you think is happening on the ground?

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Kirk Cheeseman: Well, personally, I still think we’re in a washout phase

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Kirk Cheeseman: from the pandemic period. So if I first take you

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Kirk Cheeseman: back to March, 2020, when that occurred, everybody thought every

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Kirk Cheeseman: business in Australia was going to go broke with lockdowns

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Kirk Cheeseman: and not being able to operate in a perfect world.

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Kirk Cheeseman: So there was a lot of concern about businesses and

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Kirk Cheeseman: their ability to pay. And of course we had businesses

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Kirk Cheeseman: go broke like Virgin and entertainment businesses, food and restaurants

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Kirk Cheeseman: were really struggling through that lockdown period. But then the

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Kirk Cheeseman: government rode in on their horse and were the white

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Kirk Cheeseman: knight for that famous word stimulus and they put lots

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Kirk Cheeseman: of money into the economy, job keeper, job seeker, home

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Kirk Cheeseman: builder, which created unfortunately, well, a good element for businesses,

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Kirk Cheeseman: but it did create a false economy, which we are

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Kirk Cheeseman: paying for now.

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Sean Aylmer: So when you say wash out, what we’re seeing is

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Sean Aylmer: not necessarily a reflection of exactly what’s happening today, it’s

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Sean Aylmer: actually a reflection of what’s happened in the last four

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Sean Aylmer: years or so?

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Kirk Cheeseman: Yeah, absolutely. So with the stimulus and protection mechanisms relating

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Kirk Cheeseman: to insolvencies and bankruptcies, we saw insolvencies halve during that

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Kirk Cheeseman: pandemic period. And of course the natural elements of businesses

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Kirk Cheeseman: we’re going to have insolvencies and people who are paying

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Kirk Cheeseman: on time and can’t pay on time, and that essentially

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Kirk Cheeseman: ceased during ’20 and ’21. So at the backend of

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Kirk Cheeseman: ’22, we saw businesses starting to struggle and of course

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Kirk Cheeseman: all those elements you talked about, cost elements, inflation, labor

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Kirk Cheeseman: shortages, increasing costs, they all played a part in all

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Kirk Cheeseman: of a sudden having all this extra cash through the

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Kirk Cheeseman: stimulus to not having that. And that’s now flowing through

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Kirk Cheeseman: and washing out. So we’re seeing businesses like Godfreys become

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Kirk Cheeseman: insolvent and that’s due to during lockdowns, people bought lots

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Kirk Cheeseman: of kettles and toasters and coffee machines and now they

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Kirk Cheeseman: don’t need them. So we’re seeing that wash through the

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Kirk Cheeseman: economy and now we’re seeing insolvencies back to normal levels

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Kirk Cheeseman: or even higher than normal levels and also a lot

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Kirk Cheeseman: of stress in the business world because collection actions and

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Kirk Cheeseman: ATO requesting for taxes to be paid back now is

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Kirk Cheeseman: really putting the heat on.

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Sean Aylmer: Okay. Are there any particular sectors that you can highlight?

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Sean Aylmer: You just talked about Godfreys, the vacuum cleaner retailer, which

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Sean Aylmer: has gone into voluntary administration and some of the stores

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Sean Aylmer: are expected to shut in the next week or so.

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Sean Aylmer: Is it those goods style companies that are struggling more

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Sean Aylmer: than services or what’s the temperature there?

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Kirk Cheeseman: Yeah, we typically see the leaders of the insolvencies relating

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Kirk Cheeseman: around the building construction sector and of course with home

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Kirk Cheeseman: builder there was this massive upflow of building approvals. Then

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Kirk Cheeseman: the builders had a lot of issues because of labor

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Kirk Cheeseman: costs and delays in supplies. So that’s washing through now.

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Kirk Cheeseman: So the building and construction industry typically lead the way when

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Kirk Cheeseman: we see actions or problems with insolvencies. And with consumer

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Kirk Cheeseman: spend slowing, like you mentioned, yes, we’re starting to see

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Kirk Cheeseman: the retailers undertaking some pressure. And even in the finance

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Kirk Cheeseman: world where people were funding elements or cashflow, we’re starting

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Kirk Cheeseman: to see labor hire. We’re starting to see issues in

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Kirk Cheeseman: those sectors also.

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Sean Aylmer: Stay with me, Kirk, we’ll be back in a minute.

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Sean Aylmer: I am speaking to Kirk Cheeseman, group managing director at

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Sean Aylmer: NCI. That’s National Credit Insurance. Are there any sectors that

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Sean Aylmer: have sort of gone through it and come out of

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Sean Aylmer: it and looking better?

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Kirk Cheeseman: Yeah, absolutely. We had many clients who, like I said,

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Kirk Cheeseman: in March, 2020, went, ” Oh my God, this is going

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Kirk Cheeseman: to be a real problem.” And then actually they had

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Kirk Cheeseman: high demand, price increases, so they saw activity and turnovers

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Kirk Cheeseman: increase that built up their cashflow. People working from home,

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Kirk Cheeseman: the tech or IT, laptops were bought at a high

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Kirk Cheeseman: rate. So there was this massive spike of demand and

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Kirk Cheeseman: those businesses did extremely well. Now, we’re seeing that soften,

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Kirk Cheeseman: those sectors and that’s where they don’t have the same

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Kirk Cheeseman: level of cashflow, so they’re having to adjust to this

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Kirk Cheeseman: washout period that’s different from when they had that demand

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Kirk Cheeseman: and some support mechanisms from the government.

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Sean Aylmer: When do you think we get back to normal, if

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Sean Aylmer: there is such a thing as normal?

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Kirk Cheeseman: Yeah, that’s a very good question. I mean, we’re still

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Kirk Cheeseman: seeing collection actions really high. So in 2023 versus 2020,

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Kirk Cheeseman: they’re up 247%. So businesses aren’t so forgiving at the

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Kirk Cheeseman: moment. And then also the ATO putting on some pressure

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Kirk Cheeseman: with they have to collect their money, they’re waiting for

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Kirk Cheeseman: taxes, which they didn’t put pressure on for businesses to

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Kirk Cheeseman: pay during the pandemic period, which is the right thing

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Kirk Cheeseman: to do. But now obviously they’re putting the heat on

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Kirk Cheeseman: of businesses paying those taxes back. I personally think at

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Kirk Cheeseman: the end of 2024 or the beginning of 2025, we’ll

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Kirk Cheeseman: probably start seeing the adjustment of the washout flow through

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Kirk Cheeseman: and businesses will have that time to correct their labor

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Kirk Cheeseman: forces, change their pricing mechanisms, see the demand go back

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Kirk Cheeseman: to sort of normal rather than these spikes and get

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Kirk Cheeseman: back to their normal cashflow projections. So I think at

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Kirk Cheeseman: the end of this year, possibly the beginning of next

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Kirk Cheeseman: year, we’ll see normal levels again.

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Sean Aylmer: Is this good or bad for National Credit Insurance? I’m

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Sean Aylmer: trying to decide. I mean, it’s kind of good because

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Sean Aylmer: people are probably thinking about the need to have a

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Sean Aylmer: safety net there as a business. Not so good if

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Sean Aylmer: people aren’t paying back.

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Kirk Cheeseman: Yeah, absolutely. I mean, for us, obviously the concern when

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Kirk Cheeseman: the pandemic hit was that there was going to be

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Kirk Cheeseman: a lot of businesses go broke and then what would

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Kirk Cheeseman: the insurance market actually do and react to that. But

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Kirk Cheeseman: it’s been extremely stable. Obviously, we didn’t see the masses

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Kirk Cheeseman: of levels of insolvencies. And yes, you are right, people

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Kirk Cheeseman: are thinking about protecting themselves more and more. In Europe,

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Kirk Cheeseman: this product is used a lot. In Australia, it’s still

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Kirk Cheeseman: very… It’s an emerging product still, but it’s good for

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Kirk Cheeseman: us in the way that people are thinking about protecting

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Kirk Cheeseman: one of their largest assets being their debtors ledger. But

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Kirk Cheeseman: also, it is a great tool for growth as well.

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Kirk Cheeseman: So if people are looking to deal with more customers

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Kirk Cheeseman: or look at new zones or new products, they can

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Kirk Cheeseman: use this as getting more credit in able to expand

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Kirk Cheeseman: their businesses. It can work both ways, both as a

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Kirk Cheeseman: protection mechanism and to grow their business.

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Sean Aylmer: Kirk, I’ve understood everything you’ve said until that very last

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Sean Aylmer: bit, to grow their businesses. Is this because their debtors

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Sean Aylmer: are insured, so their lenders look at that and say, ”

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Sean Aylmer: Hey, they’re guaranteed to get X in the dollar or

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Sean Aylmer: the dollar or whatever it is, therefore we’ll lend them

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Sean Aylmer: more money.” Is that kind of how that works?

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Kirk Cheeseman: Absolutely, Sean, you’re spot on. So you did understand very

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Kirk Cheeseman: well, and-

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Sean Aylmer: I did understand.

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Kirk Cheeseman: People can use their debtors ledger as a securitization tool

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Kirk Cheeseman: and go to their banks and say-

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Sean Aylmer: Yeah, of course.

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Kirk Cheeseman: … ” Hey, you become a secured party to our debtor’s

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Kirk Cheeseman: ledger, it’s insured. If something goes wrong, we’ll get 90%

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Kirk Cheeseman: of what we’re owed back and you can be a

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Kirk Cheeseman: beneficiary of that,” and that makes their funders happier.

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Sean Aylmer: You mentioned that it’s bigger in Europe than Australia. Now,

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Sean Aylmer: I’ve never really run a business that had invoices coming

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Sean Aylmer: in like that, so I’m totally out of my realm

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Sean Aylmer: of experience here, Kirk. In Europe though, is it more

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Sean Aylmer: about growing the business or is it just like the

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Sean Aylmer: European economy generally has been a lot tougher than Australia

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Sean Aylmer: or the US for years, is probably fair to say?

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Kirk Cheeseman: I probably have to go back to historical times here.

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Kirk Cheeseman: So credit insurance established itself through export trade, international trade,

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Kirk Cheeseman: and because businesses didn’t know who they might be trading

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Kirk Cheeseman: with or weren’t so sure about who they were trading

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Kirk Cheeseman: with in other countries, they’d buy this credit insurance for

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Kirk Cheeseman: protection. So it was a very European type product. And

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Kirk Cheeseman: it came into Australia. It’s growing and now many businesses,

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Kirk Cheeseman: whether it’s SMEs or multinationals, use trade credit insurance as

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Kirk Cheeseman: a protection tool for domestic trade.

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Sean Aylmer: Very interesting. Kirk, thank you very much for talking to

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Sean Aylmer: Fear and Greed.

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Kirk Cheeseman: My pleasure. Thanks, Sean.

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Sean Aylmer: That was Kirk Cheeseman, group managing director at NCI. That’s

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Sean Aylmer: National Credit Insurance. This is the Fear and Greed Business

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Sean Aylmer: Interview. Join us every morning for the full episode of

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Sean Aylmer: Fear and Greed, Australia’s best business podcast. I’m Sean Aylmer.

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Sean Aylmer: Enjoy your day.