Summer (over)spending effect on debt collections

Summer is a time for sun, vacations, and carefree enjoyment. However, it also brings the challenge of budgeting responsibly amidst the allure of increased spending. As summer expenditures rise, it is critical to understand how consumer buying habits influence their capacity to pay bills on time!

Temptation-led increased spending

Summer frequently provides a slew of wonderful opportunities, such as getaways for the family, outdoor activities, and vacations, among others. While these experiences are undeniably delightful, they come at a premium price, resulting in increasing costs. According to Barclaycard, consumer spending in the United Kingdom surged by 15.4% in August alone. Furthermore, Lane Hipple discovered that 52% of Americans overspend throughout the summer.  

Moreover, some individuals regard summer as the time to enjoy life and make the most out of the sunny months. Therefore, it is not unexpected that some customers may spend above and beyond their budget, even under unfavourable economic circumstances. As Ipsos has suggested, 3 in 4 Europeans travelled this summer, despite being in the region with one of the highest inflation rates.

Natural effect on the ability to pay bills on time

The danger of failing to pay a bill climbs exponentially as spending increases. The previously noted urge to make the most of summers might result in missing payments for even basic services such as rent, utilities, or similar, causing other, not as fundamental companies to weigh the risks as well.

The risk of missing payments grows with increased spending. Overspending can lead to a domino effect, where one missed payment triggers others. Consequently, pressuring customers to pay a debt doesn’t seem like the right approach.

Dilemma for businesses

Businesses depend on consistent revenue, and according to Forwardai, insufficient cash flow causes 80% of business failures. This demonstrates that maintaining regular payments from customers may become one of the few most crucial aspects in continuing to operate sustainably. However, as previously said, customers are more prone to overshoot their budget throughout the summer and then fail to pay their payments on time.

“According to Forwardai, insufficient cash flow causes 80% of business failures”

Businesses are therefore faced with the rather hard decision of whether to tolerate the late payment, or pursue alternatives, which may eventually result in an organization obtaining the cash. In terms of solutions, some may appear to be more offensive than others; consequently, companies must evaluate how consumers will respond and what is the best method to retain relationships and recover the debt at the same time.

Role of instalments in debt collection processes

Instalments are one of the few effective methods to recover late payments. Instalments are a friendlier and less stressful approach to dealing with an unpaid account. Instead of facing the daunting task of repaying a debt all at once, consumers can choose a repayment plan in smaller amounts, benefiting both parties.

Given that consumers are more prone to overspend during the summer, instalments present an ideal solution for businesses to collect debt. This approach allows them to recover part of the debt while maintaining a positive relationship with their customers, who are likely to contribute to future revenue.

Recommended reading: Unpaid bills due to inflation? Try offering payments in instalments

Postponing a payment date

Moreover, providing an opportunity to cover bills later might be a solid solution as well. Customers generally have the means to cover their expenses, but unexpected overspending may temporarily hinder their ability to pay.. They will, however, be able to fully meet their bills in the near future as they cover the disparity between the budgeted and actual spent amounts. 

Allowing customers time to recover financially has shown to be an effective debt collection method, especially for companies that can withstand temporary changes in cash flow. Most crucially, by allowing a payment to be postponed, a company portrays itself as understanding and helpful.

Collectmaxx

Collectmaxx provides customers with a one-of-a-kind payment reminder solution. This service not only supports instalment payments, but also allows for payment postponement, providing essential flexibility. It’s a strategic tool for companies looking to collect money in innovative and customer-friendly ways. Are you ready to incorporate it into your operations? For further information, please contact us.