top of page
Blog: Blog2

Bubble, Bubble, Toil and Cashflow Trouble: How to Run Credit and Collections in a Recession

Thea Dudley

By Thea Dudley

While many financial experts are predicting a recession in 2023, the credit community is buzzing that we'll see more bankruptcies late this year or early next. Warning signs are numerous: The PPP money is gone, price escalation clauses in contracts and work orders haven't been utilized or included, and material pricing and shortages continue their roller-coaster ride. The credit community is also seeing contractors pushing to stockpile materials out of fear, blowing out their credit lines, sucking up cashflow they may not have, and erasing lien rights.

Business leaders have become so numb to price hikes that they aren't pushing to protect and collect their hard-earned cashflow. When money flows easily, the lessons from harder times get forgotten: Creditors ease up on payment terms, allowing customers to “eek out” on the AR. We are already seeing a slowdown in payments.

If you haven’t been actively putting polices and processes in place for your credit and collections, you are already behind the eight ball. But there are things you can do right now to start turning the tide and preparing to keep your cashflow healthy as the recession rolls in.

1. Take a hard look at your accounts receivable NOW

  • Reel in the slow payers.

  • Stop allowing and accepting the excuses. Hold customers--internal and external--accountable.

  • Take action on the troubled accounts NOW. Hope is not a credit tool.

2. Document credit policies and procedures

  • Update them to reflect the current environment and best practices.

  • If you don’t have written policies and procedures, now is the time to craft them.

  • Enforce the policies and procedures at all levels. Accountability is critical.

3. Stop the pain before it starts

  • Utilize credit applications that outline your terms and conditions. If you don’t have interest and attorney fee provisions, many states do not allow you to include them after the fact.

  • Utilize credit reports on customers or potential customers. These reports show how they are performing payment-wise, and their trend alerts provide insights.

  • Don’t assume your customers have checked out who they are doing business with. Do your own research on their business partners.

4. Lien rights are there for YOUR benefit – use them!

  • Dust off your process for preliminary lien notices or create a one. Then implement it.

  • Don’t wait until it is too late to reach out for this tool--know the deadlines for filing liens.

  • Talk to your customers about protecting themselves as well.

The recession is upon us, so it is not too late to batten down the hatches. Get those proactive practices going and limit your stress factors, at least from the money aspect. Most customers don’t intentionally plan to not pay you, but bad things happen, and your customers are not immune. Planning, processes, policies and accountably should be your new buzzwords.

Thea Dudley is a consultant to the construction industry's credit and collections community. She is author of the book The Credit Overlord's Guide to Credit & Collections and has a free online credit management training course on the Levelset website.

370 views0 comments


bottom of page