|Tariffs and Collections: It's All a Small World
If you’ve seen the news over the past few weeks, no doubt you are aware of the tariffs that the United States has implemented on goods coming from overseas. Some of them have already gone into effect, others are up in the air, and any of them can, and often do, change on a day’s notice. In this new economy, I thought it would be interesting to look at this matter from a collections perspective and to consider how tariffs might be connected to our industry.
While many projections estimate that the U.S. economy as a whole may not be too adversely affected by a trade war, businesses in particular industries certainly will be. Any business with a heavy reliance on imported materials and goods that have tariffs imposed on them may see a significant increase in the costs for those items. This can cause a trickle down effect in which these additional costs are either being passed on to the end buyer or absorbed by the importer. Either way, profit margins will shrink resulting in importers not being able to pay their bills on time, increasing the number of unpaid accounts, turning into claims and bankruptcies.
With retaliatory tariffs being placed on U.S. goods by other governments, the same can be said for companies that depend on exporting their goods. These businesses are finding their products being priced out of the foreign market and will be forced to try and sell them at a discount in an already highly competitive domestic market. Here too, profit margins may be wiped away leading companies to fall behind on payments.
Although at first blush the increase in claims may seem to be a lucrative opportunity for the collection industry, we must keep in mind that the capacity of debtors to pay is what makes a claim a viable item.
It will certainly be something to watch as all of this trade posturing and negotiations play out in the coming months. In the meantime, the global collection industry is poised to step in to try and support the world’s cash flow.
Thomas W. Hamilton
7701 Las Colinas Blvd., Ste. 800, Irving, TX 75063