As the Bank of Canada issues a stark warning regarding the steep jump in mortgage payments in the coming years, Canadian businesses, especially those involved in B2B transactions, need to take proactive steps to secure their financial health.
The central bank’s report paints a picture of mounting pressure on households and businesses alike, with mortgage renewals set to increase by over 60% for variable rate holders by 2026. This financial strain won’t be isolated to individual homeowners. It will send ripples across the economic landscape, affecting businesses of all sizes.
Why B2B Collections Are Critical
1. Tightened Cash Flows: With households facing higher debt-servicing costs, discretionary spending is bound to decrease. This will inevitably affect businesses throughout Canada, particularly those whose revenue streams are significantly influenced by consumer spending. As businesses experience tightened cash flows, the domino effect always leads to delayed payments to their suppliers and service providers.
2. Increased Financial Vulnerability: The report indicates that while larger corporations might withstand the turbulence due to their diversified assets and liquidity, small to medium-sized enterprises (SMEs) are more vulnerable. Many SMEs have less financial buffer and are more susceptible to immediate market changes, including the payment behaviors of their clients. This vulnerability makes it crucial for businesses to prioritize their receivables management.
3. Rising Interest Rates and Debt Servicing: As interest rates climb, the cost of borrowing increases in lockstep. Businesses facing higher costs for new or renewed loans might delay payments to their creditors. In such an environment, ensuring that your receivables are actively collected becomes paramount.
Strategic Steps for Business Leaders
A. Proactive Collections Strategy: Businesses should review their credit and collections policies to ensure they are aligned with the current economic forecast. This might involve tightening credit terms, conducting more frequent credit reviews, and employing more rigorous follow-up procedures on overdue accounts.
B. Leveraging Technology: Utilizing advanced analytics and AI can help in predicting which accounts are likely to become delinquent, thereby enabling preemptive action. Technologies that automate sending reminders and managing communications with clients about their accounts receivable can also reduce the administrative burden and improve efficiency.
C. Building Relationships: In times of economic stress, maintaining strong relationships with clients becomes even more important. Open lines of communication can help in negotiating payment terms that work for both parties, potentially avoiding the need for more severe collection measures.
D. Legal Preparedness: Businesses need to be prepared to take legal action if necessary, but should consider this as an expensive and slow-moving last resort. The cost and time involved in legal proceedings can be crippling, so it’s smart to explore quicker, lest costly avenues first.
E. Diversification of Client Base: Relying too heavily on a few big clients can be risky, especially in unstable economic times. Diversifying your client base can mitigate the risk and reduce the impact of non-payment from any single client or being exposed when a key sector gets hit.
What to Do?
As the financial landscape becomes increasingly challenging, with forecasts pointing to a continued rise in interest rates and economic pressures, Canadian businesses, including consumer-facing ones and those operating on B2B models, need to be vigilant about their collections processes.
Your ability to effectively manage and collect on overdue accounts can mean the difference between navigating economic downturns successfully or facing severe financial troubles. Ensuring robust and effective collections strategies are in place is not just prudent; it’s essential.
Whether your business is already feeling the strain of overdue accounts — or you fear trouble may be on the horizon — don’t wait. Reach out now to one of our business debt or consumer debt recovery experts. We’ll help you collect quickly, to put you in the best possible position for whatever is next.
