I’m often asked how things are going in my business. As you can imagine we are as busy as we have been in many years. That’s good news for us, and, as long as we can collect the money owed, good for our clients.
In a bad economy there is a collection cycle. We saw it in the dotcom bust in the late ’90’s. I’m sure we will see it in this downturn as well. There is a time in the beginning of a downturn when it is relatively easy to collect debt. Businesses make a concerted effort to pay off their obligations quickly so they can continue to do business. In particular they pay obligations that are being collected by a law firm because they do not want to get sued. With some exceptions, this is the cycle we are in today.
Over time, collections slow down. People begin to ignore the agreements they made, stop answering the phone and simply go quiet. Generally this signals the last gasp of a debtor. Unless there is an uptick in the economy, the debtor’s money, and thus their ability to pay, runs out.
In the dotcom era, the slide from collectable to non-collectable occurred about a year and a half in. Companies dug out of debt and then almost in concert, stopped. At that point many companies simply went out of business. We are not there yet, but unless the economy improves I predict the same sort of slide, industry by industry over the next year.
Obviously the auto industry is in trouble, but we are still collecting in related industries. If things do not improve quickly, I expect that trend to reverse in the near future, and payments to slow significantly. Unfortunately other industries can be expected to follow.
The obvious message is to collect what is owed to you now, before it is too late.