With more economic issues piling up all the time, and the most extreme rate of inflation in 30 years, uncertainty is on the rise as well. Commercial credit cannot escape the effects, but it helps to have a comprehensive understanding of what those effects might be — and what they mean for B2B credit moving forward.
Most things cost much more than they did before, and costs will continue to rise with inflation. Instability makes loans tempting, but the risks can be even higher. Some businesses might be more likely to seek a loan to make ends meet, while others might hesitate to borrow for fear of the current economic situation spinning out of control. Interest rates are already up in response to inflation, which can result in an inability to pay and eventually, delinquency. And that’s just for companies that can get loans approved.
To deal with these immediate consequences of inflation, communication is the single most important tool in your arsenal. Communicate with your clients about what they can and cannot handle, what cost increases mean for their repayment plans, and what you can both do to set them back on the right path.
Supply chain issues can also affect a client’s financial stability and contribute to an inability to pay. When this happens, suppliers are also thrown off, unable to provide what their customers need and often struggling with their own materials supply challenges. Commercial credit ratings suffer in turn, which can damage a business’s reputation and its ability to qualify for a commercial loan or line of credit in the future. Meanwhile, supply chain disruptions persist.
With all the current economic obstacles, what can your company do to survive? Some are cutting costs by delaying or pausing digital transformation plans, which can cause a whole different set of problems in an increasingly digital world. Still, navigating economic turbulence is about adjusting priorities, and cutting costs may be preferable to accruing more debt. Loans are increasingly difficult to get, which risks a boom-and-bust effect as companies attempt to win approval now rather than later.
If it affects business, it affects commercial credit. With current inflation rates, expect a surge in borrowing followed almost immediately by a massive decline. Keep a close eye on inflation and interest rates, maintain communication with debtors, and engage with a third-party service to resolve bad debt. In earth-shaking economic times, preserving your business — and its independence — is priority one.