There are roughly 5.8 million small businesses in operation today and 117,000 new businesses are created every month. Two thirds of small businesses generate less than $500,000 in annual revenue. These enterprises make up over 95 percent of businesses in the United States and one-fifth of total revenues. Many of these businesses are the ones feeling the most pain in our current economic downturn. For example, one of the areas our company has focused on traditionally is insurance. the insurance industry has seen a significant downturn in commercial lines “earned premium” over the last few years because typically, premiums for things like workers compensation insurance are based on payrolls. most of the business we receive from P&C companies are construction or hospitality related. These industries are clearly having difficulties.
What’s in a Name?
One of the problems for creditors over the years was that some dishonest business owners would simply open a new bank account and start a new company periodically and let the old company die a slow death. The subtle name change was transparent to their customers, but to creditors it was a problem. They would put the new company in their wife’s name, child’s name or worse. Since credit for businesses and consumers was widely available, it was easier to get credit within 30 days opening a new bank account. Personal guarantees and social security numbers were not required by the creditor and were not always required as a condition of obtaining credit. In the last few years, this practice is changing rapidly as savvy lenders view small businesses more like consumers. Without credit and business credit cards, small businesses cannot survive.
View a Small Business Customer Like a Consumer
Studies over recent years have shown the following:
Small business online purchasing and payment behavior mirrors consumer behavior. On many levels, the online payment preferences of small businesses are very similar to that of consumers. Preferences begin to diverge as the small businesses annual revenue grows or as the years the small business has been in operation increase.
• Credit is an important feature of any payment method. Not surprisingly, for a majority of small businesses, corporate cards and other payment instruments tied to credit are the payment devices of choice. But there is also a growing interest by Small businesses in alternative products tied to checking products.
Litigation is Expensive and Less Productive
Traditionally, commercial collections was pretty cut and dry. If the debtor refused to pay, and the balance warranted suit, the client and the agency would agree to litigate the account. This was a “win” for the debtor because often, it bought the debtor a year or more before needing to discuss the debt and they could continue business as usual. To make matters worse, the debtor would either enter a long-term payment plan after being sued or settle the debt for a much lower amount on the courthouse steps. Clients felt compelled to sue quickly to “protect” their place but if the debtor closed his doors (on paper) and reopened under another name, the process would start all over again.
Why Credit Matters
We have taken a different approach at Access. When the debtor says “Sue Me”: or “I Don’t Care”, we simply tell them that it is our responsibility to report their debt to commercial credit bureaus within 90 days if there is no “valid” dispute and they are unwilling to resolve the debt in a reasonable period. We also point them to a new website we have created, www.whycreditmatters.net. We explain that in a post 2009 environment, their personal credit and their business credit are almost one in the same. Also, we give them the facts that their credit report is being viewed at least 100 times per year by all of their creditors for behavioral scoring and credit scoring purposes. This approach is less adversarial than the legal approach which the debtor expects and in some cases prefers. The result of our less adversarial and educational approach has been greater coöperation, admission of a problem, better open communication and higher resolutions. In 2012, a less adversarial approach coupled with real credit education is the right way to resolve a higher percentage of accounts over a shorter period with less cost. It’s simple, before a debtor will pay the bill, they must understand it is really in their best interest.