Consumer Bankruptcy filings are up 30% over the past 12 months and up 39% in November 2008 as compared to November 2007. Clearly, consumer bankruptcy filings are not only on a general upward trajectory, but the pace is accelerating. One reason is that credit card debt continues to grow.
This may defy common sense, as we think people must be cutting back on spending and debt. But the reality is, with job losses, and energy price surges, and banks not making so many home equity loans, people turn to their credit cards.
What does this mean for the small business? Maybe not much. If you take cash, or credit cards and have a good verification process in place, business won't change much. However,the increased consumer insolvency can impact the business that's unprepared. Here are some things you should consider:
Do you take checks? If so, you can ask your bank for remote check verification. A scanner that can automatically make the deposits for you remotely. It doesn't necessarily protect you 100%, but if the account is closed, or has insufficient funds, you should know immediately
Do you take credit cards? You're probably OK, since the credit card issuer will pay, as long as it isn't a fraudulent transaction, and as long as you have verification through a swipe machine or internet gateway (Does anyone process cards by hand anymore?)
Do you extend customers credit? Many small businesses do, particularly professionals such as dentists, orthodontists, lawyers and doctors. If you do, you are probably going to see more account losses. Consider requiring credit card payments instead of billing on account. You can also set up an on line payment system through Google Checkout, or Pay Pal. Here at our office, we bill clients, and allow them to pay on line through our website. You can also consider allowing a discount, of say 2%, for payment at time of service.
On the other hand, if you're a risk taker, you could see extending credit to costumers as an opportunity to expand your business. With credit harder to come by, and other businesses tightening terms, a business that was willing to accept payments on account could be attractive to some consumers.