|
What Can Your Business Learn From the Northern Rock Banking Panic?
In this past week, there has been a huge
panic over the bank Northern Rock after it
was granted emergency funding by the Bank of
England. Without going too much into the
complexities of the situation, there are
still several useful tips your business can
take away from the chaos:
1. If you have problems, explain them in
a clear way, and emphasise what you are
doing to fix them.
People have been panicking and withdrawing
money in their thousands, despite the
original problems at Northern Rock having very little
bearing on existing customers. Instead of
understanding what was going on people
thought the bank was about to collapse, and
actually worsened the situation by reducing
the banks available cash sources.
In times of difficulty, don’t hide behind
the situation. Take action, and make sure
that people who may be worried (for example,
suppliers might start reducing your credit
terms as they think their money is at risk)
are contacted and given solid information to
reduce their worries. E.g.: Contrary to
rumours, our current cashflow difficulties
have no bearing on our ability to pay your
company, if that is ever likely to happen we
will inform you immediately.
2. Relying on one source is risky – Have
a backup plan
Northern Rock’s problems appear to have been
caused by their reliance on sourcing funding
for their loans and mortgages from foreign
banks (at a low interest rate, which they
then lend on at a higher rate.) When that
source went into difficulty because of the
'credit crunch' in the USA and stopped
lending, Northern Rock appeared to be
lacking a back up plan.
If you have one main supplier, make sure you
have a contingency plan ready to act quickly
in case of difficulties in your business
relationship.
3. Don’t overreact to rumours
If people hadn’t overreacted to the news of
Northern Rock being given emergency funding,
then the likelihood is that it would have
had very little effect on the business. The
company was solvent and profitable, but
would have had to restrict new borrowing
while cashflow was tight. Yet people
panicked, misunderstood and caused chaos for
the company.
If you hear rumours about your industry,
your competitors or suppliers; don’t act
without finding out more and thinking
carefully. For example: If you hear your
best customer is having financial trouble,
don’t suddenly remove credit facilities and
stop orders; if the rumours were wrong, or
if the problem was just temporary, you could
risk ruining your business relationship.
4. Help bring customers back
After a problem has died down, you should
act quickly to restore the confidence of
your customers or suppliers. Northern Rock
has wisely offered to refund any penalties
paid by customers who withdrew money from
accounts that needed notice periods if they
re-invest the money back into the same type
of account. They have also made it clear in
ads and on their website that they are open
as usual, and remain a safe place for
investment.
Visit our Marketing
portal for more information on communicating
with your customers and suppliers.
| 
