As businesses make their quarterly earnings announcements, the nation’s five largest lenders expect a loss. Wells Fargo, Bank of America, Citigroup, JPMorgan Chase, and U.S. Bancorp claim that defaults due to the Coronavirus will cause a significant amount of debt. Collectively, the amounts of projected damages top over $100 billion. How can you avoid bad debt when these companies couldn’t?
How companies are handling debt worldwide
A shift in retail sales caused many suppliers abnormality regarding their inventory and cash flow. Major companies, such as Nike, reported to the U.S. Securities and Exchange Commission that they have millions of dollars in bad debt. Other companies, like JCPenny, have already jumped ship and filed for bankruptcy. While there is something to be said about the companies that remain afloat, it’s apparent how differently they carry out their business practices.
How responsive should a large company, or even a small business, be to default borrowers? It’s a common question asked all around the world.
Businesses and bad debt expenses
Businesses need to stay informed about the current status of the economy. As risks fluctuate, they should adjust their lending terms in order to avoid bad debt. Additionally, companies can pivot their product offerings to match what is obtainable for their customer. It’s generally about supply and demand, sprinkled with achievability.
Furthermore, lenders can share positive information as part of their marketing. Setting a tone of encouragement during loan repayment is just a good start. Next are a few examples of what businesses should guide their borrowers towards.
How borrowers can avoid bad debt
Creating campaigns advocating early loan payoff and best repayment practices will help both sides of the equation.
1: Set up automatic payments so they don’t forget.
Autopay not only makes paying towards a loan easier, but it also ensures timeliness.
2: Try rounding up when paying.
Rounding up pushes a loan to completion faster, thus avoiding bad debt. Adding a couple of dollars more over the minimum throughout the life of the loan will also reduce overall interest.
3: Use excess cash towards a balance.
When a borrower has excess cash, they should work towards eliminating their balances. Consider sticking with loans without penalties for early payback.
4: Stay informed of changes.
Keeping an eye out for promotions or rate reduction offerings helps borrowers to get the lowest terms possible.
5: Establish open communication if there are problems with repayment.
Situations happen and it’s important to keep your lender informed. Reporting an issue early will allow lenders to provide the best guidance to their borrowers.
Don’t let bad debt cause a disconnection
Unsettled debt does not have to drive a divide between a business and its customers. Instead, Mark Cuban, an American entrepreneur and media proprietor, states that now is the time to connect more than sell. As the economy recovers, lenders that kept their borrowers as their allies can look forward to appreciating the long-term benefits. There is no such thing a bad customer, only bad debt. Using a holistic approach will assure increased recovery.