Whilst many hoped that 2021 would mark an end to the Covid-19 pandemic and a return to normality, the reality both in the UK and globally is very different. The mutation of the virus into new, more transmissible strains has in fact seen the number of infections and hospitalisations soaring to levels far beyond the initial peak, with governments across the globe once again forced to impose strict lockdown measures to try to control the virus and save lives.
Whilst the approval and deployment of several vaccines does bring hope of an eventual end to the pandemic, it is clear that vaccinating entire populations will not be accomplished overnight. For the foreseeable future, 2021 will look very similar to 2020 – bringing with it further economic uncertainty on both a national and global scale. Which, without a doubt, will have significant implications for the debt collection industry in 2021.
A changed world
When we do finally emerge from the pandemic, it is clear that the world as we know it will have irrevocably changed. Many socio-economic experts believe that, as per the World War II, the magnitude of the social and economic impact will lead to the 21st century being classified as either pre or post Covid.
“The COVID-19 pandemic has changed the world, and its effects will last.” McKinsey & Company – The next normal arrives: Trends that will define 2021—and beyond
Impact of rising government debt
The effect of Covid-19 economically also appears to be of nightmare proportions. There have been unprecedented increases in government borrowing in order to both manage the virus and the mitigate the impact on businesses and the economy – this is at a level in the UK and US unseen since World War II – the debt from which the UK has only just finished repaying the balance 75 years after the event.
As the world tentatively emerges from the pandemic, governments will have to address the level of debt – which is likely to mean raising taxes, cuts in spending, or both. Both measures come with the risk of slowing the recovery and creating further financial uncertainty for business and individuals.
Challenging economic environment
Whether governments choose to tackle this rising debt through tough austerity or a longer-term approach, for both individuals and businesses 2021 looks set to be a challenging economic environment.
Already reeling from the economic uncertainty of Brexit, many UK businesses have been battered by the financial implications of the Covid-19 lockdown. Although currently bolstered through extensive government interventions and support initiatives, the end of the furlough scheme, business rate breaks and the start of bounce back loan collections will undoubtably cause some businesses to fold and lead to a loss of employment. Insolvency experts Begbies Traynor estimate that over half a million UK firms are now at risk of collapse.
Implications for the 2021 debt collection industry
It is without question that, as the world returns to normal post Covid-19, there is going to be a proliferation of debt and a wealth of work for those in the business of collecting overdue payments. Companies and consumers who have never once defaulted on a payment are going to find themselves in a position where they literally cannot find the means to pay. Meanwhile, many businesses are likely to need to collect every penny possible in order to survive.
This 2021 debt collection environment is one in which many individuals and businesses are going to be forced to make difficult decisions, prioritizing who to pay and when, and consequentially collecting what is due is going to be increasingly difficult. It will be critical to ensure your business is either top of the payment queue or has the flexibility to work with customers, be they business or consumer, to develop longer term payment strategies.
With the inevitable increase in bankruptcy and insolvency filings leading to a greater volume of unrecoverable bad debt, this all adds up to a challenging debt collection marketplace. Ensuring your credit and collections processes are fully optimised, so that you can identify and work to resolve potential issues early, will be critical to maintain cashflow and minimise risk.
Ashley Barratt – CEO, Barratt Smith Brown