Uncollected Customer Debt Can Negatively Impact Businesses’ Profitability and Growth

    JN Group

    Larry Watson, chief executive officer of the Jamaica Chamber of Commerce (JCC), states that any company that has a significant percentage of its business as credit customers, could find its uncollected debt to be crippling.

    “It has a negative impact on cash flow and in any business, cash flow is key. Hence, the saying in business that, “cash is king and profit is an illusion,” he said.

    Mr Watson pointed out that the COVID-19 pandemic has exacerbated the problem for many of these businesses, with financial institutions and payday loan companies seeing their bad debt increasing. Another sector he said that has been affected is the food distribution industry.

    “Reports received indicate that the food chain (distribution, wholesale and retail) has seen quite buoyant sales and some distributors believe that customers who are taking longer to pay, are using COVID-19 as an excuse. The days of outstanding debts have increased, but not significantly,” he added.

    Kevin Nightingale, general manager of Total Credit Services points out that under these circumstances, businesses can benefit from employing professional debt management companies, to assist them with these non-performing loans (NPLs).

    “Companies that pursue these outstanding funds on their own, may find themselves burdened by tedious paperwork, diverting critical resources of time, money, and human effort away from essential business-building activities.  By opting not to partner with a professional debt management company, the risk of neglecting the requisite strategies to recover outstanding customer debts, and help to retain a robust customer base, increases,” he explained.

    He said organisations, for instance, can benefit from an approach, which involves developing repayment plans with borrowers to foster compliance and accountability.

    “This leads to high customer retention, boosting of the bottom-line, and helping to restore the businesses’ operations and place them ‘back in the black,” Mr Nightingale related.

    “Often, people do not fully understand what they are getting into at the point of applying for loans,” he explained.  “Or they might not understand how to untangle their finances when payments become overwhelming.”

    “When customers are unable to satisfy loan commitments, this can impact the bottom line of their business,” he outlined.

    According to the Bank of Jamaica’s quarterly report released in September 2020, un-serviced bank and mortgage loans grew by one-third to $27.9 billion, over the span of the year ending June.

    It is the highest percentage increase in eight years, as the dollar value grew by $7.5 billion, from $20.4 billion a year earlier. The non-performing loans, or NPLs, reflect the increased economic challenges several borrowers faced amid job losses and lay-offs linked to the COVID-19 pandemic.

    Much of the decline resulted from the total lockdown of the tourism sector, which lasted more than two months to mid-June 2020.

    Meanwhile, the reports of payday loan companies listed on the Jamaica Stock Exchange have shown an increase in loan default and an increase in bad loan provisions.