Some people believe a recession is lucrative for the debt collection industry. With a recession comes more late payment of invoices and overdue accounts. On the face of it, people make the assumption that it is boom time for the debt collection sector.
Contrary to popular belief, a recession does not bring any benefits to the debt collection sector at all usually. It certainly does not benefit the Business debt collection field and personal debt collection also becomes more challenging.
A recession produces a fragile economy that has its own jeopardy for the debt collection industry.
With a rise in Business insolvencies being recorded, it clearly means that the recovery rates for commercial debt collection agencies is falling. The rise in Business insolvencies also means a spike in job losses.
The spike in job losses means people are unable to pay their personal debts and so on. The domino effect continues on, affecting many.
This article takes a look how the recession could be affecting both Personal Debt Collection and Business Debt Recovery.
Consumer and Personal Debt Collection during a recession
Despite the recession, personal and consumer debt collection have been progressing in the wrong direction for quite some time.
Massive increases in the cost of living, spikes in utility bills, heightened interest rates have all contributed towards dwindling recovery rates amongst the UK’s consumer debt collection agency (DCA) sector.
Now, with the recession officially acknowledged by the Government, this will only further fuel the difficulties faced by Consumer DCAs.
With the increasing number of firms going bust, the unemployment rate will no doubt feel the impact of that. Less money means less debt gets paid which will hurt many of the larger consumer debt focused DCAs.
Many businesses that go bust will also be non-limited companies and self employed. When this occurs, the self employed individual or proprietor of the business becomes personally liable.
Agin, this will lead to a rise in personal debt collection against sole traders.
How does the recession affect Commercial Debt Collection?
The financial impact of a recession hits the commercial sector hugely.
For example, if a large organisation has a 100 overdue accounts, maybe as much as 20-50% of those business customers who are Limited companies go go into the liquidation.
The retail and construction sectors are particularly being hit hard by sector insolvencies.
The level of commercial debt increases during a recession but also does the level of liquidations and administrations.
As previously stated, the more firms going into liquidation, the more people are out of jobs and wages do not get paid.
We have reported on spiralling insolvency levels in many sectors recently. Even Freelancers are struggling to get paid by their clients.
Debt collection during a recession
The recovery of Debt is always going to be difficult, but it is especially challenging in the current economic climate.
Many businesses are struggling to stay afloat and often have little or no cash flow to pay their debts.
This means that freelancers and small businesses are left with unpaid invoices and mounting financial pressure.
It becomes a vicious circle where speed is of the essence. If Businesses are owed money they need to act quickly.
All Businesses understand the economic pressures of a recession so therefore acting quickly when a customer does not pay on time could be the difference between getting paid and not getting anything.
By partnering a debt recovery agency near them, many businesses could save themselves from the perils of unpaid invoices.
What has caused the UK’s Recession?
Official figures show that it is a blend of financial factors.
People spending less, the Doctors strikes and a fall in school attendance have all contributed towards dragging the UK into a recession according to official figures.
