Month: June 2022

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Is Inflation Bad for Creditors?


How High Inflation Rates
Impact Commercial Debt Collection

With U.S. inflation higher than it’s been in more than 40 years, creditors are wondering what the effect will be.

If the nature of your business includes extending commercial credit, you may be concerned about how rampant inflation will affect your ability to collect payments.

The Down Side

Inflation troubles creditors for two primary reasons:

  1. During periods of high inflation, the value of currency declines over time. So the money creditors receive from their clients has less value than the money they lent. In other words, cash now is worth more than cash later.
  2. The higher cost of basic necessities will result in more consumers defaulting on their debts. The commercial businesses who rely on those consumers could then end up defaulting on their own financial obligations.

As the inflation rate climbs, any company that relies heavily on purchased goods can take a hit to their bottom line. In addition, rising fuel and energy prices can significantly increase both direct and indirect costs for all kinds of businesses.

Countries with
Highest Inflation

  1. Venezuela — 284.4%
  2. Sudan — 260.2%
  3. Lebanon — 208.1%
  4. Syria — 139.0%
  5. Zimbabwe — 96.4%
  6. Suriname — 61.5%
  7. Turkey — 61.1%
  8. Argentina — 55.1%
  9. Iran — 34.7%
  10. Ethiopia — 34.7%

Source: Trading Economics

Of course, companies severely affected by inflationary factors can choose to increase their own prices in order to compensate for increased costs. But there’s a limit to how much consumers are prepared to pay. So reduced sales and increased strain on business finances could be the end result.

The Up Side

However, high inflation can actually benefit creditors in some ways.

For example, more consumers will seek credit to buy big-ticket items because of the higher prices. So creditors can expect more new customers. Another plus: these higher-priced items will earn more interest for the creditor.

Also, during high inflationary periods, consumers may request more time to pay off their debts. Creditors who extend payment periods can collect additional interest.

Responding to High Inflation

Are you worried about your ability to collect commercial debt because of high inflation? Here are a few suggestions for reducing risk:

Not Always a
Bad Thing

A commonly held misconception is that inflation always harms everyone financially. But a small and predictable rate of inflation offers a hedge against deflation and therefore is generally considered acceptable (even good).

That’s because if the inflation rate runs too close to zero, there’s an increased risk of negative inflation. And negative inflation increases the threat of deflation – often resulting in economic recession or depression.


  • Maintain close contact with your commercial customers who are in danger of default. This will help them identify your business as a priority creditor.
  • Optimize your invoicing process to ensure you’re not lagging behind. Timely invoicing will help minimize cash flow issues. You may also consider shortening the payment window to 14 days, especially for electronic transactions.
  • Be willing to extend payment periods. Flexibility is key during times of economic uncertainty.
  • Surging inflation heightens the risk default, as companies under financial pressure may be tempted to aid their cash flow by delaying payment to suppliers. So now may be a good time to retain a commercial collection firm.

Partner with CAB

If inflation continues and the economic situation worsens, many businesses will be at greater risk of default. As a result, you may need to consider taking matters to the next level through legal action.

When you partner with CAB, our unique combination of law firm and commercial collection agency means you’ll have the right collection professionals in your corner to keep cash will flowing.

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Khan Academy
Christian Science Monitor

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More Americans Relying on Credit Cards Amid Rampant Inflation

Total Card Debt Expected to Hit All-Time Record

With inflation running higher than it has in more than 40 years, Americans are beginning to rely on plastic more than ever.

Continually rising costs of necessities is causing more Americans to depend on credit cards to make ends meet. Ted Rossman, a senior industry analyst at, believes that total card debt will likely hit an all-time record sometime this summer. What effect will this debt have on the economy as a whole and on businesses in particular?

Tables Are Turning

The current situation is a reversal of what occurred at the height of the pandemic, when Americans used stimulus checks to pay off a record $83 billion in credit card debt.

Living Paycheck
to Paycheck

Research conducted by PAYMENTS.COM in February 2022 revealed that 62% of the American adult population lives paycheck to paycheck. This figure includes half of all adults who earn more than $100,000 annually

The study also found that those who earn $100K maintain an average savings of about $11,000. However, paycheck-to-paycheck Americans who earn $50,000 or less have an average savings of only $788.


In addition to the stimulus money, pandemic-related forbearance and deferral programs for mortgages or student loans allowed households to apply these funds toward credit card debt.

But now, after paying these cards off, many Americans are diving back into debt due to soaring inflation.

The latest report from the Federal Reserve Bank of New York revealed that credit card balances are $71 billion higher than they were for the first quarter of 2021. In addition, the balances on new credit card accounts reached $229 million – higher than pre-pandemic levels.

In the short term, the higher credit card usage means increased revenues for businesses. But over the long term, the higher cost of goods brought on by interest charges can result in reduced revenues.

Delinquencies Increasing

A recent TransUnion study found that credit card delinquencies and defaults are increasing among non-prime borrowers (individuals with credit scores below 660). The credit card delinquency rate is projected to reach around 8.4% by the first quarter of next year.

Prime borrowers (those with credit scores above 660) were also found to be carrying a heavier month-to-month credit card debt burden than in the past two years, according to TransUnion.

As more Americans default on credit cards, fewer creditors will be willing to do business with them. This can result in a reduction of borrowing overall, curtailing revenue for businesses throughout the economy.

And yet, with the price of gasoline, groceries, and just about everything else eating into a finite amount of available cash, credit cards are often viewed as a lifeline. But at what cost?

Climbing Interest Rates

The average credit card balance was $5,525 in 2021, according to Experian, with an interest rate of about 16.4%. But as the Federal Reserve continues to hike interest rates in an effort to ease inflation, those balances keep rising.

With additional federal interest rate hikes expected this year, Rossman predicts the average credit card interest rate to exceed 18%. This means that non-prime borrowers, who may already be paying as much as 24% APR, can also expect rate increases.

–Article Continues Below–

What It Means for Your Business

Rampant inflation increases the risk of customers defaulting on debts. If your customers are other businesses, you also are at risk, as these businesses rely on consumers.

Companies that acquire a large proportion of their sales through credit cards can experience drops in revenue when their customers default on these debts. The more vulnerable a business is to consumer debt, the more likely it won’t be able meet its own financial obligations.

Which is why this period of high inflation is a good time to partner with CAB. Let our collection professionals carry this debt recovery burden for you, so you can focus on what you do best: operating a profitable business.

Featured Image: Adobe, License Granted
New York Federal Reserve
The National Desk
Nerd Wallet
Harvard Business Review


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