It’s June 2023 and household debt just set an all-time record. And it could affect every business in the country.
The New York Federal Reserve issued a report in May 2023 that indicated a new record in household debt. Americans have racked up over $17 trillion in debt. And that should concern every business owner, entrepreneur and anyone responsible for accounts receivables.
From rising inflation to a changing job market, there are many factors that have contributed to this record number.
There has never been a better time for your business to hit the pause button and thoroughly analyze your entire accounts receivables program. That also includes the debt collection process your business has implemented and the partners you use to enhance your cash flow.
Here are a few reasons why it is mission-critical for your business to take a hard look at your accounts receivable process to ensure you’re prepared for the months and possibly years ahead of late payments.
On time payments equal enhanced cash flow
Cash flow management, especially in times when household debt is on the rise must be a top priority for any size business. The heartbeat of your business is cash flow and the only way a business of any size sustains turbulent economic conditions is to be laser-focused on creating positive cash flow.
And common sense tells us that negative cash flow turns into a chain reaction. When people don’t pay your business, you now have the challenge of meeting your own financial obligations which can include payroll, utilities, rent, paying vendors and more.
Your financial health relies on prompt payments from customers. It’s just that simple.
Reducing your own financial risk
If you have a high amount of delinquent customers and outstanding accounts receivables, your organization is now exposed to financial risk, especially in economic conditions where household debt is on the rise. You may think of a debt collection agency as a solution to get customers to pay but it’s also critical to minimizing your company’s financial risk. You can mitigate your risk by getting more assertive with your collection practices.
We witnessed too many businesses during the COVID-19 pandemic that shut their doors because they were already on edge with risky financial practices. The more you focus on cash flow and accounts receivables the more likely you are to weather financial storms.
Picture your personal life. Your car breaks down, you have very little cash and bad credit. What are you going to do?
Calming employee fears
What can be devastating to your organization is any rumors about struggling cash flow. The moment employees hear any type of chatter about lack of resources, it can start the process of your team doubting your financial health. Employee morale takes a hit and if it is not addressed quickly, you may even lose valuable talent.
If you employ others and value that team, you have an obligation to ensure that you have the cash flow necessary to pay your employees. It only takes one instance of late payroll to start the rumor mill.
Allocating your resources more effectively
Negative cash flow will only force your business to make tough decisions. Those decisions could include what bills your business pays and what to put off. Negative cash flow may require you to make hard decisions about hiring or reducing your workforce. And if your business doesn’t get ahead of your cash flow challenges, your credit just like a consumer’s credit could be affected.
When you have healthy cash flow, your organization has the ability to manage your financial resources much more efficiently.
You will strengthen your business relationships
It may sound counterintuitive to many but by using a debt collection agency that is a great fit for your company, you will be strengthening the relationships you have with consumers and others.
A lack of communication only breaks down relationships of any type. And that’s why it is important to maintain open lines of communication with customers that have not paid you.
Managing payment issues promptly and proactively helps to minimize disputes and misunderstandings before they get to a point where they cannot be resolved. You will be able to foster goodwill with your customers even when economic conditions are tough.
And whether it’s your staff or the debt collection agency you have representing your company, when you show that consumer that you are willing to work with them and offer them solutions to get caught up on their obligations, it goes a long way in maintaining that relationship you have built.
As household debt continues to rise and be a challenge for many families, your organization must take this seriously and double down on policies, procedures and next steps in debt collections in order to maintain a healthy and thriving business.