From energy and fuel to groceries and broadband, costs are on the up. It's hard to think of a sector of the economy that hasn't been affected. And that means pressure on the spending power of people across the UK.
However, it's not just consumers who are feeling the squeeze. The cost of living crisis is also a cost of doing business crisis. The latest ONS producer price inflation update showed that the headline rate of input prices rose by a staggering 19.2% year-on-year in March 2022, the highest rate of increase since records began.
What impact could this have on you as a creditor? And what can you do to weather this perfect storm of economic pressures?
Rising debt levels are piling on risk
It's hardly surprising that individuals and businesses are already turning to additional borrowing to meet everyday challenges. According to the Bank of England's most recent Money and Credit Overview, consumers borrowed an extra £1.9 billion (excluding mortgages) in February, while large business borrowing from banks rose to £4 billion. Accountancy firm BDO's March survey of 500 business leaders revealed that 31% of respondents are seeking additional finance, with that figure rising to 42% for hospitality and leisure businesses.
With rising debt levels, many of your customers may be overstretched. If inflation continues to move upwards and other global pressures such as the war in Ukraine are not resolved quickly, your customers could be looking at real financial challenges and you could be facing issues with getting paid what you're owed.
What this means for you as a creditor
With increased costs, supply issues and the need to service more debt, even if their underlying profitability is sound, some of your debtors could be experiencing severe cashflow problems. That means, at the very least, they’re likely to be prioritising which bills they pay promptly and letting others go unpaid for as long as possible. In the worst-case scenario, they could default entirely on a debt and you could be forced to take legal action.
Rising to the challenge
In this challenging economic environment, it's more important than ever to keep a close eye on your debtors and follow best practice in your credit control processes. The good news is that there are some simple things you can do right now to reduce the risk of a debt going bad.
The first thing to do is to consider working with a professional debt collection agency, not just when you're already struggling to recover a debt, but before things get to that stage. Involving a debt collection agency sooner rather than later should mean that the debtor places you higher on their list of creditors, so that they prioritise payment of your invoices and you have more chance of receiving prompt settlement.
Whether you're partnering with a debt collection agency or relying on your own finance team, early intervention is key. It's important to tighten up your credit control procedures, which means sending timely invoices, statements and reminders. It's also a good idea to stay in close contact with the debtor so that you can make an informed assessment of their ability and willingness to settle the debt.
Why it pays to work with us
At Redwood Collections, we can work with you at any stage of the debt collection cycle, from proactive credit control and debt management to making one-off collections or providing advice and support for taking legal action. Our industry-leading expertise has delivered excellent results time and time again for all kinds of clients, from major corporations to SMEs and independent schools. Despite the challenges of the cost of living crisis, we can help your business Grow Stronger.
Take the next step. Email us at info@redwoodcollections.com
