The Impact Of Falling Interest Rates On Family Businesses; A Debt Recovery Perspective

The Bank of England has recently announced a cut to interest rates for the first time since 2020, down from a 16 year high of 5.25%. Whilst this has been welcome news to many, this brings both opportunities and challenges for family businesses.

Whilst much has been discussed about the benefits of lower borrowing costs and increased investment potential, it is equally important to understand how these changes impact cash flow levels in family businesses. This article delves into the implications of falling interest rates for those businesses and explores strategies which we recommend they adopt.

The Impact Of Falling Interest Rates

Most family businesses are small to medium sized concerns. Effective debt recovery is critical for those businesses for maintaining healthy cash levels and ensuring financial stability. Falling interest rates can have the following effects on those businesses:

• Lower interest rates typically result in increased borrowing and spending amongst customers and businesses. Whilst this can lead to higher sales for family businesses, it also increases the risk of customers over extending themselves, potentially leading to more defaults on payments.
• Family businesses with existing debts benefit from lower interest rates, thus improving their ability to manage and recover debts themselves, however this advantage might be off-set if the broader economic environment remains uncertain.
• Falling interest rates often signal economic slowdowns. During such periods, family businesses often face more difficulties in maintaining their cash reserves and recovering sums due from their customers.

Strategies For Family Businesses To Adopt

We understand that family businesses have significant loyalty to their customer base. We understand that they sometimes find it hard to have those difficult conversations about unpaid bills. This can often result in delays in recovering debts which can sometimes prove fatal.

However, it is important for family businesses to implement strict credit control procedures and stick to them. If defaults in customers paying their invoices are on the increase, family businesses must stick by their credit control policies, however hard that may be.

It is important to keep communicating with your defaulting customers. Speak to them. Engage with them. If they have over-extended themselves and are finding it difficult to make payment, then it may be that you need to consider extended payment terms. Getting paid over an extended period of time is better than not getting paid at all.

If all else fails, it is important to engage professional debt recovery firms sooner rather than later. Those firms will often have the expertise and access to technology to enable quick recovery to be made on your behalf. Quite often a change of person or letterhead does the trick. And if you are finding it hard to have those difficult conversations with your customers, then engaging with debt recovery specialists to have that conversation in your stead is often a benefit.

Conclusion

Falling interest rates in the UK present a complex landscape for family businesses, particularly from a debt recovery perspective. While lower borrowing costs offer certain advantages, they also introduce cash flow risks which require careful management. By strengthening your Credit Control Policies and engaging with Debt Recovery Specialists, you can help mitigate those dangers.