Inflation is shrinking your receivables

With every day that passes inflation is eating away at the value, or purchasing power of your receivables. The receivables you collect today, or in the future, are worth less than when your customer originally financed their purchase. Money paid on an account today has less purchasing power because of inflation.

Inflation is hitting the economy, companies and individuals from almost every direction. The inflation of gas prices is hammering the bottom line and profitability of many companies. Metals such as nickel, steel, cobalt and aluminum have seen double and triple-digit percent price increases. Food and other commodities, such as wheat, have seen double digit price increases this year. All of these inflationary factors are driving down the value of your purchasing power, increasing restocking costs.

It appears we are in a transitional phase as companies adapt to new price increases and regulation restrictions. In many instances companies have had to eat the price increases due to contracts and competition pressures. There is an aura of uncertainty at present, as there are no indicators when this inflationary spiral will end.

Supply shortages can have a devastating effect on a company?s operations and bottom line. When supplies become available delinquent receivables limit the amount you can restock.

When you factor in inflation and shortages delinquent receivables carry a hidden additional monthly recuring cost. The inflation costs on receivables vary by company and industry. The higher the inflationary and shortage costs hit a company, the higher the monthly cost of carrying receivables. Also, as inflation spreads throughout the entire economy the monthly cost is sure to increase.

With purchasing power eroding every day it is wise to keep a tight reign on tardy receivables. It is better to get your money now rather than a few months down the road where any profit has been eaten up by double-digit inflation.

Companies should set an age milestone on delinquent accounts. Once a receivable hits X days it should be referred for third party collection. 90-day old receivables can usually be collected with a soft approach so you don?t lose the customer. Habitual or seriously delinquent receivables often require a stricter approach. The bottom line is the money you collect today is worth more than it will be in a few months.

Third party collections are a cost-effective way to reduce inflation damage to your bottom line. Prices and availability are changing every day. Mortgage rates in Canada are rising, which will increase the rate of inflation.

We are in an economic environment that is unprecedented. Keeping delinquent receivables at a minimum could make a difference in surviving this inflation tsunami.