In our July newsletter we mentioned that in a recession, it would show us the best of times for some people and the worst of time for others. Herein lies the problem for all businesses. There will be those which will do so well, they will allow their customers to steal from them. Other businesses, retail for example, will see their customers steal, either because the customers were thieves by nature, or others felt they had no other option in order to survive.

We have seen this stealing for survival aspect in the food riots, looting and store takeovers from the days of the GFC onwards in Europe and in South America.

The businesses which allow their customers to steal from them

There will be businesses which do so well, even in this recession, they will become blasé about their good fortune and great profits. As a result, they will relax their business disciplines and deem that spending on risk management can be reduced. These funds will probably then be used for dividends to keep shareholders “happy”, or used for takeovers, marketing, or on bonuses to salespeople and management. Unfortunately, rarely will these funds be used to pay down debt, or saved and kept for a rainy day, or for unforeseen problems.

Due to the relaxed thinking of management, their businesses will sell to new customers with the minimum of due diligence, and/or, their customers will come to realise that prompt payment is no longer necessary. In either case, payments will be delayed. As a result of the slackening in business disciplines, outstanding monies will blow out and debts in customer accounts will increase. Alternatively, management will be afraid of upsetting customers and believe that if they try too hard to bring down the debt levels, their customers will leave for the opposition.

The businesses which ignored the pitfalls of extending B2B credit

Those businesses which ignore the new world of B2B credit, will soon be in trouble because their cashflow and profits suffer from non-paying customers. In prosperous times, prior to 2019 for example, many businesses tended to take due diligence as an afterthought.

There was also the thought at that time, extra sales would soon soak up any losses from bad debts. However, in a recession, there are rarely any extra sales, apart from a few specific and lucky industry sectors. When there are fewer sales, often with a reduced profit margin, such as in the construction industry, that is when businesses run out of cash with only bad debts to show for their efforts.

The businesses which failed to understand debt collection, is more than debt collection

Debt collection is no longer feared by many of your customers because they KNOW, most creditors will never sue them. This situation has come about for many reasons. One of these reasons is that owners and management teams had one or two bad experiences and then declared, “… legal action is a waste of time”. This type of thinking then morphs in to the concept that debt collection is a waste of money, which could have been better spent on marketing and sales initiatives.

What many businesspeople forget is that debt collection is not just debt collection, it is part of an ongoing asset protection strategy. If you understand that fact, there are many forms of debt collection which are now available to protect your business’s assets. Incidentally, you can only take further action if you have proper documentation signed off by the customer and funds available in a contingency account.

This is a subject too large and complex for a simple article on this occasion. The main focus of the article has always been to try and understand the motives and reasons behind how and why people steal. The fact remains, the majority of your customers do in fact steal from you because you allow them to, or they are natural thieves, or they believe there is no other way to survive.