The question of the day is “why?”
In my last blog post I wrote how 50% of Canadians are only $200 away from not being able to meet their monthly financial obligations. Half of all consumers in Canada are now literally on the verge of insolvency!
Think about how few people in business or government have significant training on how to write and manage a budget. Now how many know anything about negotiating contracts or arranging payment terms? I've long felt that financial planning and business essentials should be a part of school curriculums.
Education plays a major part in this crisis. And consider our role models.
Government is the embodiment of a social contract. It has a lead role to play in the life of the nation and its people. Yet how many governments act as a good financial role model?
You and I work like dogs to pay all our bills, meet obligations, and ensure our customers pay us on time. Our businesses and households absolutely need more money coming in than going out, or the consequences are bleak. Yet our example is flattened by that of governments who borrow and borrow, until debt is meaningless.
As of this writing, Canada’s net debt is $768,000,000,000.00.
That’s 768 Billion. Over three-quarters of a trillion dollars of debt and rising, for a country of 37,590,000—40% of whom don’t pay income taxes.
And that's just Canada’s federal debt. Each of us carries the additional burden of our province’s—plus our municipality’s—cumulative shortfalls. Yuck. To clear my head, I’ll go for a stroll.
I enjoy taking a walk on our call floor. As CEO, there are many good reasons to connect with your staff, and I love engaging with the MetCredit teams. They’re a pleasure—great people, hard workers, bright, deeply caring, and every measure of the professionals we train them to be.
They tell me what they’re hearing on collections calls: bewilderment.
And by that, I mean a pervasive, worsening lack of understanding as to how money, finances and debt work. It’s not just a casual observation but a fact: according to a 2019 parliamentary study, nearly half of Canadians lack financial literacy.
Wait—that stat... No, surely a coincidence.
Try asking people you know to define debt and deficit. A good half of them will freeze. Then, little bluebirds appear, circling over their head while calliope music plays. Confusion can be comical, except that some of those bluebirds belong to your customers. Maybe around half-ish?
The risk of your company being affected by its customer’s financial shortcomings is real. While I can’t tell you everything you need to know about receivables and collections here, I’d like to offer four ways to rethink accounts receivable, and what you can do to maximize your chances of recovering them soon.
1. Timing is everything. The moment a receivable is overdue, you’re losing (or paying) interest because a planned deposit didn’t happen. And after 90 days, not only does that receivable get more difficult to collect, it loses value as a result. It’s a vicious cycle with a vortex that can drag your company down. The unfortunate end game is when your unpaid invoices turn into your vendor’s overdue account because you needed the money owed to you. It was your money, and failure to receive it can make you a debtor. Collecting overdue debt early is the best practice.
2. Educate yourself about your customers. You are an expert on issues affecting your industry—but you probably have blind spots in industries upstream from your customers. When the Coronavirus surfaced in China, a portion of global aviation shut down. Fewer jets in the air and millions of people confined to their homes meant a sudden drop in oil prices. Few people in the oil and gas industry was thinking a virus in China was going to cause financial pain so quickly, but the price of oil plunged as a result. Getting to really know your customers and their industry is good for your bottom line. If they continue to pay on time, great. You still get a payoff from insights into their business, making you a better supplier.
3. Collections Restore Customer Relationships. It seems obvious to us as debt collectors, but we’re not you. Customers only provide value when they pay for what they get. When that doesn’t happen, they are a liability. They took your product or received your service. You’ve spent money bringing in the business, doing the work, delivering product and servicing the account—and now it’s time to get paid. There’s nothing wrong with asking for what you’re owed. In fact, it’s your obligation to ask. It can be uncomfortable and feel at odds with how you build relationships. We get it. As a neutral third party, your collection agency resets the relationship with your customer. MetCredit collectors are trained in a proven process. The sooner you start the process, the better it works, the more of your hard-earned money we can recover. Our expertise is at restoring your delinquent accounts to being regular, valuable, paying customers.
4. Pro Debt Collection is Low Risk. Overdue accounts are an unreasonable, imminent threat to your business. I hardly need to describe it; you know the stress. It’s consuming, paralyzing, and clouds your business thinking. Not sure I’ve actually sweated blood, but it’s felt like it once or twice. The idea of spending money to get what you’re owed—it seems like a pile-on to the risk. At MetCredit, we get it. That's why if we don’t collect, you don’t pay. The odds you’ll see oxygen masks drop from the ceiling are greater than the probability we can’t collect. But I’ll circle back to point number 1: the longer you wait, the harder it becomes. Like gravity, it’s a law. Time erodes the value of debt. The single biggest risk is in waiting to send an account to collections.
My teams across Canada (and in the U.S. at MetCredit USA) have a wealth of experience and are a walking library of knowledge on recovering accounts receivable in every kind of situation. You can meet several of them on our Overdue Advice podcast, or download my 10 Pro Debt Collection Tips. And when you want to talk or have questions, give me a call or reach out on LinkedIn.
We may never be able to do much about how our governments manage finances. But your business debt, we can fix.