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Category: Insight | Date: 06/07/2022

Remember the lesson of the 2008 financial crisis: Avoid complacency at all costs

History tells us complacency can be extremely dangerous for a business, no matter what their size or previous success. Here, Roberto Simone, risk development executive at Xenia, explains the importance of learning lessons from past failures.

The term “too big to fail” entered the mainstream lexicon during the 2008 financial crisis.

It was the impression many large companies seemingly had of themselves - that they were so large, so vast and so integral to the financial system that if they went bust or ran into difficulty, it would have a catastrophic chain reaction on the economy and governments would be forced to step in with financial support.

It was complacency embedded within the organisations, and within the very system itself.

Complacency, as we know, can be commonplace in everyday life and is sometimes a killer from a trade credit risk perspective.

Unfortunately, we have seen it in the form of collapses of various firms since the 2008 financial crisis, a stark reminder no business is too big to fail, no matter how big or successful it appears on the outside.

Often, when such events occur - as has been the case in recent years with big firms like Palmer and Harvey, Carillion, Blockbuster, Toys “R” Us - a clear insightful trend and lesson is seen right across the realm.

It can provide that extra urgency for businesses to strengthen their balance sheets and maintain their own performance and viability: well aware these events can just as easily happen to them.

Avoid complacency at all costs

Apply robust procedures to protect cash flow and the supply chain

It is not about pointing the finger or waiting for failure, but applying strong analytical proficiency, building strong business relationships and a supportive network.

This can not only negate financial distress but provide the platform to aid health, growth and ultimately sustainability.

The collapse of any high-profile business will clearly act as a guide and emphasise the apparent risks: not only for liquidity, cash flow and financial health, but also the wider supply chain.

This one major facet is highlighted as a concern given the potential impact a lucrative and dependent channel can have on the overall supply chain fluidity and the echoes that can reverberate with other firms they have ties.

So continue to have the same robust procedures for the customers and suppliers who are not too big to fail and continue to challenge any abnormalities - even if the organisation concerned is an integral part of the market and your own success.

Xenia’s team has extensive product and sector knowledge, helping us help clients tackle their business challenges. To find out more about our services, click here.