The UK woke up on Friday to the reality of Brexit. It was a surprise to many – including it emerged over the weekend many within the ‘Leave’ campaign – we are in uncharted waters.
But what will be the impacts, for customers currently in arrears and the volumes of customers likely to fall into arrears?
What will be the impact upon credit management, debt collections and recoveries?
Customers in Arrears
It was pleasing to see the Bank of England and Mark Carney’s immediate statement on Friday and in particular the impression that contingency and mitigation plans had been thought through.
Clearly there was immediate reaction from the market. The pound fell (now slowly recovering) and immediate political reaction in the UK, from the rest of the EU (rEU) and further afield.
A short-term ‘keep calm and carry on’ attitude seems to have largely prevailed and been adopted by creditors.
This in my view is a good thing and perhaps inevitable as there is almost no detail on what terms UK businesses will operate under after Brexit. There is a great deal of uncertainty until these things become clear and only a vague timeline! Hopefully stability will be maintained whilst these things are sorted out.
In the medium term there is considerable uncertainty. Whilst no-one can fully predict the outcome at this stage, there are several factors that, in my view, could be influential (I will not go into the reasons for some of these views for reasons of brevity):
- Business investment will (on average) be slow or go elsewhere, and the UK economy will slow/contract.
- UK tax revenues will decrease, increase slowly thereafter and government borrowing costs will be higher than recently resulting in more austerity and an extended timescale for the UK to return to a balanced budget.
- Business financing costs will rise and investments deferred or delayed resulting in impact on business growth and the ‘real economy’.
- Many non-UK EU nationals will leave the UK resulting in reduced tax take and talent pool. Costs will increase and hiring will become more problematic in some industries.
- There will be less full time permanent employment opportunities as companies hold back on investment, yet still need to have these problems solved.
- There will be political and economic consequences in the rest of the EU and further afield too.
- There is likely to be a least an economic slowdown if not another recessionary period.
All of these things will lead to reduced income for many businesses and individuals in credit with likely slow growth of income thereafter.
The nicely timed report from the UK’s Resolution Foundation this week on Living Standards added weight to my view on the impact on many UK individuals/families but seems to me that all these things (and others!) is likely to result in:
- Reduced availability of credit and a slowing of credit decisions (particularly from larger lenders).
- Significantly increased numbers of people/businesses having difficulties in meeting payments and/or entering collections and recoveries.
- More difficulties for those already in arrears.
- Customers putting off spending and borrowing decisions, reducing growth and increasing loss rates.
Impact upon credit management, debt collections and recoveries
Further challenges might be good summary!
Customer situations will become more complex and solutions more difficult both for credit decisions and helping clients in arrears. Volumes of customers in arrears (or close to it) will increase so there will be operational impacts. The regulation impacting businesses is not going away. And one of the most significant things changed since 2008-9 in my view is that culture in most organisations has changed. Most organisations want to spend time getting the right customer solution therefore time (and cost) to resolve will increase more than in proportion to volumes.
The wider economic picture, consumer sentiment and operational environment are also likely to be quite fluid and unpredictable meaning that as credit professionals we will all need to remain agile.
What can be done?
As discussed in a recent blog by my colleague Chris Warburton there is a re-emerging pride and positivity within the profession.
Furthermore it is my view that more than ever before Credit Management, Collections and Recoveries are more important to overall business strategy in high performing businesses where capabilities seamlessly work together with other business functions.
Given all the above it is my view that (although some will undoubtedly be considering cutting costs) organisations should now be considering accelerating investment in credit management, debt collections and recoveries to get ahead of the curve. This should include:
- Revisiting vision in the context of business strategy
- Reviewing operating models including testing against scenarios
- Considering accelerated roadmap of improvements
Final personal perspective
I, like many, was dismayed this week by the likely impact of Brexit in the UK, EU and further afield – particularly at a time where recovery was continuing in a slow but steady manner. ‘Keep calm and carry on’ seemed/seems appropriate.
I have subsequently reminded myself that where there is change there is opportunity. In my view some inspiration and hard work will be required, but there is opportunity for credit management, debt collection and recoveries professionals to assist businesses, customers and society cope with whatever may emerge for the UK, EU and rest of the world in the coming months and years. The future could be seen as an opportunity and exciting challenge!
Aleks Tomczyk, Chief Executive