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Effect of Inflation on Unpaid Bills and Debt Recovery Rate

Inflation translates to higher accounts receivable and unpaid bills. Wage growth does not keep up with rising prices for most consumers.

Whenever there is a spike in inflation, interest rates rise. This translates to higher delinquencies for credit card bills and more people unable to pay their mortgages. Consumers divert their finances towards more necessary expenses like food and rent over other bills obligated to pay but feel they can be deferred.

Doctors suddenly see more patients defaulting on their payment plans. More people are unable to pay their car installments. A higher number of people are filing for bankruptcy. The list goes on.

Nearly 50% more people face financial problems whenever there is a significant rise in inflation. They are now paying more for food, fuel, and almost all essential things people need daily.

It is vital to recover your share before your debtor’s financial condition deteriorates further to improve your chances of getting paid during inflation. So whenever your AR is over 60-90 days past due, hire experts – Hire a collection agency.

Effect of Inflation on Unpaid Bills

  1. Eroding Real Value: If there is inflation, the real value of the money owed decreases over time. This means that when a debtor pays back a bill after a period of inflation, the creditor receives money that has less purchasing power than it did at the time the debt was incurred.
  2. Interest Rates: Inflation often leads to higher interest rates. If the unpaid bills carry a variable interest rate, the amount owed might increase faster due to inflation, making the debt more expensive to repay.
  3. Cost of Living: For individuals, inflation increases the cost of living, as the prices for goods and services rise. This might make it more difficult for people to pay off their bills, as a larger portion of their income might be required for everyday expenses.
  4. Business Costs: For businesses, inflation can increase the cost of materials, labor, and other expenses. If a business has unpaid bills, the rising costs might make it more difficult to allocate funds for paying off these debts.
  5. Credit Score Impact: If individuals or businesses cannot keep up with their bills due to inflation eroding their real income or increasing their expenses, this can lead to late payments or defaults, negatively affecting their credit scores.
  6. Debt Reassessment: In a high-inflation environment, creditors might be more cautious about extending credit, and may reassess the creditworthiness of their debtors. This can lead to reduced credit limits or tighter lending standards, which can affect the ability to pay bills.
  7. Payment Prioritization: When prices rise rapidly, individuals and businesses might prioritize which bills to pay and may postpone or neglect payments that are not considered critical.

Filed Under: Debt Recovery

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