What a couple of years it has been for business! We can now meet clients, friends and family face-to-face rather than via the far more impersonal video conferencing methods we have become accustomed to during the Covid restrictions. So one would think it should be business as usual, however the restrictions appear to have had some effects that will only be truly evident in the coming months and years.
Travel around the town centres of New Zealand you could be forgiven for thinking that the pandemic is far from over – staff shortages are everywhere, and many businesses are changing opening times and the products they provide, and a few unfortunate ones have closed for good due to these very problems.
The feeling of relief that we as business owners have been eagerly awaiting seems to be ‘late to the party’.
So what does this look like in terms of data?
According to the CENTRIX October 2022 NZ Credit market update report:
- Consumer credit demand has climbed to pre-pandemic levels, with new unsecured lending up 18% year-on-year. This reflects the expectation that Kiwis are increasingly turning to credit to support their spending.
- Mortgage arrears have crept up to a six-month high while consumer arrears appear to be levelling out month-on-month. Mortgage applications are down 11% on last year while new lending is down 37%.
- Nearly 2.1m consumers have credit cards, however holders of multiple cards are down 33% since 2019 as many chose to close their accounts.
- Despite showing signs of improved activity the construction sector has seen an upswing in defaults. Hospitality also experienced rising defaults and is now the sector facing the most challenges as labour issues and cost pressures persist.
So what does that look like from a real world credit management perspective ?
Well, at Debt Free we are starting to get calls from long established, normally debtor free businesses experiencing unprecedented levels of indebtedness.
Businesses appear to be running pre-Covid credit management systems while trading in a post-Covid world. I liken this to wearing a tee shirt in the dead of winter simply because it used to be warm. Employed people are being paid more than ever based on the hourly figure alone but once cost of living is calculated it’s clear to see that the picture is far from rosy.
I have good friends earning over $100k pa finding it difficult to keep up with the $50k a year mortgage payments, childcare and other basic necessities of life. For many self employed people the lending that they accessed to keep their businesses afloat during lockdowns now threatens to make post-lockdown life very difficult for the foreseeable future.
So what, as business owners, can we do?
In my opinion we need to accept that the world we stepped back into is not the same one we left before. Many formerly cashflow-rich businesses have reached the bottom of their reserves and with institutional lenders tightening lending procedures some see creditor derived financing (not paying people on time) as the only option which, as you can expect, has a massive flow-on effect that travels all the way up the supply chain with the ripple effect being increased each time.
This gets worse if you cannot charge interest or late fees as you are effectively a free bank that just happens to do other things too.
It is absolutely imperative that a businesses credit management system is fully assessed by an expert in the field if it was set up before the market changed or if your business has experienced changes in established client’s payments occur – there are tools available that can literally save your business, but you can’t use something that you don’t know exists.
In my career I have seen countless business save hundreds of thousands of dollars of potential loss after a free 30 minute meeting simply because they then knew what was sitting there waiting to be used properly.
I have seen this work and if it costs me half an hour of unpaid time to save a business owner a whole bunch of pain, then that is something I am more than prepared to do (as will any other professional advisor worth your time).
Just a thought.