As we struggle to make our way back from the collection of hardships that we have all had to endure over the past 18 months, there is no denying that we are returning to a world that is much different than the one we shut down in March of 2020.
One of the most overlooked differences that we will encounter in the post-pandemic economy is an elevated amount of credit risk across the board for both companies and individual consumers.
No matter how careful we might be, COVID-19 was a clear sign pointing to just how many things are completely out of our control. With that in mind, let’s look at six factors that could contribute to an explosion of credit risk in 2022 and beyond.
Assistance-Fueled Overspending
Millions of businesses and consumers around the country were able to survive the pandemic thanks to dozens of different federal, state, and local government assistance programs. However, it can also be argued that some of that assistance has contributed to overspending on unnecessary items.
The big question that we all have to be asking is, “What happens when the assistance finally dries up?”
Supply Chain Shortages
Businesses that find themselves on solid financial footing will still have to contend with the fact that we are likely to see supply chain shortages across all industries for years to come.
If a business can’t get the raw materials they need, they can’t make the products they need to sell to create income.
Rising Cost of Goods
Businesses that are able to acquire the materials needed to conduct their operations are seeing prices for those materials rising across the board. In many cases, these elevated costs are being passed on directly to consumers, but there will eventually be a limit that creates a problem for businesses and consumers everywhere.
Rising Labor Costs
In addition to the supply chain and cost of good issues, businesses around the country are also struggling to find good employees and pay them at rapidly increasing compensation levels.
Returning COVID Restrictions
No matter how smooth a business might be operating, it is also important to remember that we are still operating in highly uncertain times. It could be any day now that we see a sudden return to severe COVID restrictions on account of new variants, and there is also the concern of an entirely different pandemic happening at the same time.
Changing Customer Behaviors
As if all of that isn’t enough to worry about when evaluating the creditworthiness of a potential client, keep in mind that even in the best-case scenario, we have already seen dramatic changes in customer behaviors from what used to be considered normal.
With almost everyone getting more comfortable with Zoom calls and online ordering, we aren’t likely to see things ever return to pre-pandemic lifestyles.
Cautious and conservative have always been the name of the game when evaluating credit risks. Like everything else, that is going to be more critical than ever in a post-pandemic economy. Make sure that you are correctly accounting for each of these new risk factors to protect yourself moving forward.
