Petrol crisis, gas crisis… carbon dioxide, chicken, tomato sauce, milkshakes, beer… the headlines have been rich the last few weeks with stories about labour shortages and supply chain issues.
Outside there shortages themselves, the headlines also reveal a couple of interesting observations.
- Just how quickly we resort to panic buying – individualism rules, our bias to to look after number one, of family unit, rather than playing as a team across society
- The headlines in some way clearly define what we really care about – we are not that interesting in ‘just in time’ – interconnected supply chains and resourcing, but impact my sneaky friday night take out (okay or Tuesday lunchtime), I am going to be upset and pay attention.
It has now been a year since the last wave of panic buying, the great toilet roll crisis of 2020 (yes going to the toilet is clearly something else we all care deeply about too, who would have thought!). In the intervening time we seem to have learned little, despite arguably the pandemic bringing some communities closer together for a while.
Faced with shortages, however, to keep the show on the road, not to mention the car and getting the kids to school, stocking up makes still makes sense. It is still our psychological default, nothing has changed.
Everything is linked
Last week I mentioned inflation, specifically wage inflation, which is a related specter that is also beginning to raise its head again.
Just as in our personal level, at the individual business level, keep the show on the road, paying more just makes sense. However, if we all do it, inflation will kick in, and if we panic hyperinflation is a real danger.
In some ways, how could we not expect impacts from the pandemic? You cannot shut down the global economy, pretty much for a year, sit people at home, change the way they work and not expect change.
However combining these impacts, lurid headlines, amplified by social media, overlaid on our own cultural bias on self-reliance, it is a heady mix. I fear we are at a critical time.
This brings me back to work and the question for this week. If we do see significant inflation, what will the impact be on the collections industry and what should we do, today, to mitigate impacts?
As those who bought a house in the 1970s, with a mortgage for £10,000, found if inflation can erode debt. The value of £1 in 1970 was more than it is in 2020. Yes, interest rates were high at the time, but if they drop again in the future, and you still have a job, then paying off a debt can become easier.
Critically this does rely on borrowers having a job and wage increases to keep pace with inflation.
For those without a job, stretched incomes or in an industry where wages are static, the outlook is troubling. The ability to pay decreases, arrears will increase together with defaults.
Then we come to the time value of money. With inflation, the effective value of money will erode faster. Simply waiting to collect or receive funds will actually reduce the value of what is received (in purchasing power terms).
Debt purchasers, with long investment horizons could be particularly hit, in terms of valuations, and collecting early is going to be key. Maximise cash flow, keep the money working for you.
This brings me neatly to the topic of the recent wave of collapse in the UK utility provider market. Another two suppliers are out of business this week.
This is, of course, distressing for their customers, and particularly a companies employees, who are now in a position to have to find new roles as the customers get consolidated into larger providers.
With wholesale supply prices high and fewer providers in the market, prices will ultimately need to go up (…more inflationary pressue). However in the short term cash flow again is critical to stay afloat.
For those on the precipice of insolvency it may be too late. However for those still with a little time the importance of a robust accounts receivable and collections process cannot be overstated.
Cash and extra cashflow is sitting right there, on the balance sheet, that can make a real difference to people’s lives (including helping customers get out of debt)…
Something to ponder more on Monday. In the meantime have a good weekend everyone.