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Knowledge & Insight

FINANCIAL HARDSHIP - HOW DOES IT AFFECT YOUR BUSINESS?

Financial hardship can bite anyone at any time. Struggling to pay for basics like food and utility bills is a scenario that few people imagine themselves in. According to the University of Melbourne Financial Hardship Project, many Australians end up in this situation through no fault of their own. Unforeseen expenses, losing a job, a medical condition, a relationship break-up, a death in the family or a natural disaster are all events that trigger financial hardship.
What does this mean for your business?
When financial hardship sets in, your customers will inevitable start paying late, paying short or not paying at all. This can impact your business cash flow and can have the domino effect where you might start to either pay your suppliers later or rely on loans (with interest) to fund your business operations. For a large number of small medium businesses (SMB), if enough of your customers fall into financial hardship, it could well lead to the business’s doors closing for good.
What should you do?
Be Proactive - Each business will have a different approach, depending on the size of your business, the industry that you operate in and the processes you have in place. Irrespective though, the key to dealing with financial hardship lies in being proactive. The sooner you are aware of your customer’s situation and reasons for not paying you on time, the easier it is to find a workable solution, both for you and your customer.
If you’re part of a large organisation, invest in a trained team specifically focused on identifying and dealing with customers in financial hardship. Alongside the team, invest in the proper processes to ensure you can pick up the warning signs throughout the customer’s life cycle. Don’t rely solely on the customer to advice you of their situation at the time a bill is overdue.
If you’re a SMB owner, invest in proper process and set time aside to stay on top of your invoices. Make sure you’re aware who you are transacting with or consider outsourcing the credit management / accounting / debt recovery process to a professional business if you don’t have the capacity or capability.
Communicate – Set up a clear plan that consists of either reducing repayments, restructuring a loan or deferring repayments altogether. Agree and communicate the new arrangement / terms over the phone, face to face and definitely in writing. Thereafter, stay in touch with your customer at regular intervals and ensure your customer notifies you of any further changes in their situation.
Empathy – Understand that financial hardship can hit anyone at any time. Yes, it puts your business at risk as well and definitely manage the risk, but still, have some empathy, we’re all human.
Plan for it – It’s inevitable, at some point a customer’s financial hardship will affect your business. Plan for it before it happens. What processes do you need, do you have a team in place, do you know how much risk your business can absorb? Or if you don’t think your business can deal with it sufficiently, operate on a cash on delivery / cash on demand basis only.

For more tips and information or if you require help to get paid, contact me directly below or via Marlé Ambrose website.
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