The pandemic brought a lot of changes to the workplace. Perhaps one most important is the improved communications pipeline between the credit department and customers. When businesses moved to the kitchen table, credit applications were updated with current contacts, phone numbers and emails. More than anytime in our lifetimes, we were in this together, so we talked. Not only did we know how our customers and their customers were doing, we knew how their family was holding up.
More than two years later, we are still communicating. Nowhere is this more evident than the collections arena. With inflation, talks of recession and the federal pandemic assistance drying up, how are customers holding up? Are customers starting to slow pay? How delinquent are accounts?
“We are seeing more accounts being sent to collections as a result of customers who are slower to pay,” said Ryan Frisbie with BARR Credit Services. “But we haven’t had this in so long, it is easy to forget this was once normal. Comparing payment trends to the last year or so isn’t the only measurement to look at. What did it look like before the pandemic?”
An example Frisbie used was slow pay. He has noticed companies that were paying in the 1-30 day window are now paying 30-60 days, which compared to payment trends before March 2020 is positive.
More importantly, he said, people are paying their bills. “I had a call with a client who was preparing to send two accounts to collections that were nearing 90 days past due. When we checked in a few days later, those two accounts had both unexpectedly paid in full. This wasn’t happening pre-pandemic, but it appears these relationships developed over the past couple of years are working the way they should.”
It isn’t all sunshine and roses, however. The cost of business is certainly increasing with decades high inflation, but other than giving credit departments pause, Frisbie noted that it certainly hasn’t caused major panic for any of the credit professionals he’s talked to recently.
“Credit departments are wondering if the light at the end of the tunnel is daylight or a training coming for them,” Frisbie said. “I know, though, for every negative thing someone is saying they are following up with comments that cashflow and profits have never been higher. We are in the sweet spot right now. Margins may be shrinking but there is money to be made and we are still moving in a positive direction.”
That’s important as 2023 planning ramps up. Frisbie recommends taking a closer look at your accounts receivables. Specifically:
- Take a look at those 90-120 day accounts, especially if they are fewer than they have been in the past. Are these good paying customers with legitimate reasons for late payments? Or, are these accounts that need more pressure applied to get them to pay.
- Do your due diligence and rely on credit basics when bringing new customers onboard.
- Use the tools in front of you – especially if you are an ICE user. They will make you m ore efficient and provide important evidence for the decisions you are making.
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Consider 1st party collection.
As the employment market tightens, Frisbie pointed to the increase of credit departments using 1st party collections to keep on top of delinquent accounts. “Outsourcing reminder letters and phone calls keeps a credit department on track,” he said. “It’s easy to let 30 days slide into 60 days. The money becomes more difficult to collect each day that goes by. But, partnering with someone you trust with your first party collections is just smart business.”
For more information about BARR Credit Services, visit BARRCredit.com or contact Ryan Frisbie at 520.274.2708.
