With consumer prices skyrocketing at the fastest pace seen in over 40 years, coupled with skyrocketing service costs such as dry cleaning, pet sitting, and even haircuts, the health of your business may be at stake. Even companies not involved in real estate are expected to suffer as the Fed battles to prevent the cost of living from increasing even more. As analysts predict another significant interest rate hike by the Fed, possibly three-quarters of a point, at its November 2 meeting, small-to-medium-sized enterprises across the United States will be greatly affected. The Fed’s actions will effectively withdraw money from the economy, decreasing consumers and corporate borrowers’ purchasing power of goods and services.
As the cost of goods, labor, and money continues to increase, families and businesses that rely on credit may find it harder to make ends meet, possibly pushing them into default. This means that some of your customers or clients may stop paying on time, negatively impacting your bottom line. To protect your business during these challenging times, consider implementing the following practices.
First, tighten your credit approval criteria and screen out customers who pose payment risks. Conduct thorough background checks to investigate a potential customer’s financial health before extending credit. For new accounts, watch them closely until you feel confident in extending better credit terms, and take action immediately when debtors fall behind.
Second, align your sales efforts with new economic realities. Instead of focusing on growing your customer base, emphasize quality over quantity. Sell more goods or services to customers who have a proven track record of paying on time, and be selective in approving credit applications. Consider adjusting your sales associate’s compensation scheme to prioritize seeking customers who not only need your goods and services but can also pay on time.
Third, deal with past-due accounts promptly as creditors compete to collect from struggling customers. Accounts receivable teams need resources such as more personnel and training to stay on top of past-due accounts. For instance, they may need to use additional communication channels such as social media to reach debtors. They must also use a positive approach to gather useful information on each debtor’s situation, making effective negotiations possible.
Finally, managing your receivables will require constant monitoring and improvement throughout 2023 to reduce credit defaults. Take action quickly with problematic accounts, and review your receivables’ management strategies periodically. With rough times on the horizon, implementing these practices can help you prepare for interest rate hikes, minimize default risks, and protect your bottom line.