How Inflation is Hammering Your Accounts Receivable

How Inflation is Hammering Your Accounts Receivable

It’s gone from inconvenient and frustrating to becoming a serious threat to many Canadian families and businesses.

Inflation is at the highest rate since Prime Minister Brian Mulroney introduced the Goods and Services Tax (GST) in January of 1991, over three decades ago.

At that time, the new tax and a war raging in the Persian Gulf contributed to cost increases, similar to today’s recently increased carbon tax and war in Ukraine.

But in addition to those similarities, many things are worse now. A never-ending pandemic, a supply chain crisis exacerbated by disastrous flooding in BC and lengthy border blockades—then the largest interest rate hike in 22 years—have combined for a perfect economic storm.

Inflation means everything you need costs more.

For retailers, a shipping container that two years ago cost $4,000 to carry products overseas now costs $20,000 for freight alone.

Expensive fuel drives up the cost of everything we buy. Even the cost of barging crude to coastal refineries and trucking fuel to the pumps is increased by the cost of oil. Food, consumer goods, travel and delivery services like Amazon are all affected by the high cost of fuel.

What you may not have considered if you run a business is what inflation is doing—right this minute—to your accounts receivable.

As of this writing, Canada’s inflation rate has reached 6.7%—a 31-year high.

That means your receivables are decreasing in value at the same rate as if you were paying extra interest at nearly 7% on them.

Money that you billed a customer just last month will NOT go as far today as it did when you sent out the invoice.

Your costs are all higher, for your business, at home, and on the road in between.

And now, if you have a mortgage or a line of credit, the cost of borrowing is rising at a pace that hasn’t been seen in years. And Canadian economists predict that interest rates will more than double in the coming year. Increasing interest rates is intended to curb inflation, yet it hammers every individual and business that carries a mortgage or line of credit, driving their costs way up.

If the people who owe money to your business are in any trouble now, expect things to get worse, not better. MNP’s latest Consumer Debt Index shows that bankruptcies have shot up by 18% in the last few months alone.

What this means to business owners is the same as always: time is the enemy. Your chance of collecting always decreases the longer you wait.

Except now it’s urgent.

With inflation aggressively shrinking the money owed to you and the cost of using lines of credit to support it going up, I believe we’ve reached a tipping point.

You simply can no longer justify subsidizing customers’ businesses by carrying overdue receivables—if you ever thought you could!

Your Accounts Receivable are being hammered, at the same time as your customers are struggling to live up to their financial commitments (including paying you), and it’s a deadly combination.

Don’t wait any longer. If there is one thing I’ve seen proven true in every economic condition, it’s that procrastination is the single biggest cause of bad debt write-offs.

So at a time like this, it’s alarmingly easy to see what will happen next. Don’t regret not taking action and sending those overdue accounts to your collection agency now.

Drop me a line if you need Accounts Receivable advice. Or reach out to one of my debt collection experts for a free assessment of your overdue accounts.

Let’s collect that debt while it’s still recoverable—and has the maximum buying power for your business!

Author: Brian Summerfelt

President and CEO of MetCredit,

Canada’s top-performing consumer and commercial collection agency

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