Early retail numbers are already showing that 2021 was a fantastic holiday season for retail businesses, but are those sales numbers creating the next massive bubble for consumers?
A recent article from CNBA notes that 45% of holiday shoppers had planned to use buy now, pay later services ranging from standard credit cards to new options provided by companies like Affirm through partnerships with retail giants like Target and Amazon.
Let’s try to examine what this potential uptick in consumer debt could mean for the debt collection industry in 2022 and beyond.
New Options Now Available
The new options available through companies like Affirm offer consumers a buy now, pay later option that is seen as an improvement on alternatives like traditional credit cards or layaway programs.
These new services allow consumers to set up their own payment plans for almost anything they want to buy, including collections of goods they might want to put together around the holidays.
Unlike with credit cards, consumers using these new options can define exactly how much of a monthly payment they are committing to and when that commitment will end.
Of course, on the other hand, this is still using credit to purchase goods, and any credit used in this manner will still end up on a consumer’s credit report.
Higher Credit Usage Means Higher Balances Owed
With more and more customers taking advantage of various buy now, pay later services, it is only natural that we are going to start seeing higher balances owed on the credit reports of those consumers.
In many cases, these higher balances will create problems for consumers by upsetting their debt-to-income ratios. In some cases, we will even see those consumers realizing that they overcommitted and cannot afford to make their minimum payments.
Higher Balances Leads to More Interest and Collections
We can also expect that higher balances on the credit reports of average consumers will create more situations where payments get missed and accounts are forced into collection status.
As more and more consumers watch their accounts fall into collections, we could see a massive uptick in the amount of interest and penalties that are collected on account of those situations.
More Collections Means Collecting Will Be More Difficult
More accounts falling into collections means that collecting outstanding balances will become more difficult overall. In most cases, the average small business owner simply won’t be able to handle their own collection efforts any longer.
As consumer debt totals continue to rise across the country, the best way for any local business to protect itself is to always stay on top of their accounts receivable. That makes this the perfect time to focus on reviewing and updating your processes to make sure that you are on the ball if a client should fail to make a payment.
This is also an excellent time to establish a relationship with a reputable debt collection agency that can work on your behalf to collect any outstanding amounts owed to you. Contact Direct Recovery today to start talking about what that might look like for your company.
