By Paul Roukchan - Updated on June 20, 2022One of the many and more interesting aspects of my job is talking to people. I spend hours talking to CFOs, Finance Managers/Finance Controllers and Credit Managers. In the past, these meetings would all go a certain way, the typical progression of these would go something like this:
- Start with catching up on a personal level, it’s not all about business, in my opinion, interpersonal relationships are more important. This is where trust is formed – if you are incapable of talking about anything other than business something is wrong. This part/start of a meeting will typically occupy 60% of total time.
- Talk about the state of the industry they are in and quite often get an exciting insight about something I did not know before.
- Talk about their business/organisation and discuss how they fit into the rest of the market.
- Conversation would typically shift into revenue/profits and will naturally flow into my wheelhouse: Bad Debt.
- We would discuss the challenges that the customer faces in collecting bad debts and look for ways how our company can help.
Oftentimes the customer would have a fairly good idea and be able to forecast the Bad Debt that they expect to have to deal with in the coming year – typically this is based on years of data and consistency.
But, as I mentioned earlier in this blog, this is how meetings went in the past. In the last 8 months I found that the meetings are driven more by my clients (rather than me) – specifically those in Finance and Lending.
The meeting would start with 1. and will go for 30% of time and shift straight to 5. this will occupy the rest of the hour. So why the change? Well, a lot has happened since November 2021. My clients used to be able to predict and forecast what their exposure would be when it came to bad debt, but not anymore, some are worried. Really worried.
With the changes to legislation (CCCFA), inflation and the rising mortgage rates have everyone rattled. Financial institutions cannot lend in the same way they could before (but apparently that will change soon), consumers cannot afford to borrow in the same way they did before, and very shortly some homeowners will struggle to pay the mortgage – which in turn will put more strain on the rest of their finances. But this does not just affect consumers, it affects businesses as well, small businesses even more so.
What nobody can predict is how this universal financial strain will affect debt ledgers across New Zealand businesses. You will be surprised how many NZ businesses do not have a plan for how to deal with bad debt, but that is because they didn’t need to worry so much traditionally. They had data and consistency to rely on. According to some of my finance/lending customers, we are in a new territory, there is no data available on what could or may happen, so it is essential to plan for the worst, the flood could be coming – 2 years has past and increased activity is being felt.
If your company does not have a plan on how to deal with bad debt or has any questions around the services, we provide please get in touch with us, it might be one of the most important phone calls you make this year. Contact us at 0800 Gravity or email at [email protected].
