Official inflation figures have just been released for December, and it won’t be a surprise to many people that the news is bad. The figure is 5.4% — the highest inflation since March 1992. This is clearly bad news for consumers, especially those on low income, but what is it likely to mean for your business?
Inflation Squeezing Household Spending
Much of the recent inflation, the highest this century, is obviously down to the energy crisis, but there are other factors. Many high street prices are also rising fast, and the cumulative effect means that incomes are falling in real terms.
According to Joanna Elson CBE, Chief Executive of the Money Advice Trust, “Household budgets are facing a double-whammy of high inflation and looming taxes rises this year. This is creating a perfect storm for household budgets”.
Experts are concerned that many low-income households are going to be forced into impossible choices — is heating or childcare more important, for instance.
What Will Be the Effect on Your Business?
The soaring cost of living, which is only likely to get worse, affects everyone. Even if your finances are more robust than a low-income family, both your personal and business spending are likely to be squeezed — especially if the Bank of England responds by raising interest levels.
However, your business could also be hit by customers unable to pay their bills, or their rents if you’re a landlord. Alastair Douglas, CEO at TotallyMoney, has pointed out that “As inflation outstrips pay, there is a growing shortfall between income and outgoings. This means more people can’t help but miss payments and other forms of credit commitments.”
Even if you don’t deal directly with the public, there could still be a knock-on effect on your business. Organisations who are your clients or trading partners may find their own finances squeezed through non-payment by their customers and find it difficult to meet their commitments to you.
What Can You Do?
So is it inevitable that you’re going to lose money as a result of this inflation crisis? To some extent, that will depend on what measures the government takes to reduce the impact of rising cost of living on household budgets. However, there are actions you can take.
As always when times are hard, it’s important to take a nuanced approach to debts that you’re owed. Of course, it’s reasonable to want your money, but sometimes taking a sympathetic approach to “can’t pay” debtors can be more effective, working with them to establish a sustainable payment plan. In many cases, this is a more likely way to receive payment than if the debtor were forced into insolvency.
That’s not to say, of course, that you shouldn’t take harsher measures against “won’t pay” clients, but it needs expertise to come up with the appropriate approach for each debtor. Give me a call to find out how I can help you in these troubled times.