Credit, Collections & Insolvency News
It is increasingly clear that the cost of living crisis will have a seismic effect not only on individual households but many businesses. With inflation at a thirty-year high and skyrocketing energy prices, SMEs face a new threat to their futures. The fact that this is occurring so shortly after coronavirus makes matters worse. Those businesses that had managed to survive the pandemic will now be looking at what steps they can take to deal with the cost of living crisis.
How SMEs react will of course differ dependent on their individual circumstances. Larger businesses may be able to absorb additional costs or pass these onto their customers by means of price increases. Smaller firms may not find this a feasible option. The weakened businesses from the last couple of years, especially those which have missed a couple of seasons of income, could be negatively impacted by any sustained drop in consumer confidence. As a result, businesses may not believe they can raise prices and retain the level of trade they require.
For sole traders, partnerships and other small businesses, the close nature of their personal and business finances could contribute to difficulties. If a small business owner’s income drops at the same time the cost of living is rising, a pinch point will soon arrive. Even for most of those who have been self-employed for a number of years, they will not have lived through an economic situation similar to this. The fact that this is unknown territory for the majority of SMEs makes it difficult to predict how many will fare over the next twelve months or more.
Banks and lenders have a major part to play to help SME customers through this challenging time. This will be achieved by identifying instances of financial difficulty, including at the earliest stages, and then supporting customers in an empathetic and effective manner. Because of the scale and potential impact of the cost of living crisis, banks should consider whether their current processes for identifying and addressing financial difficulty are sufficient. For example, it may be that some sectors require more regular reviews to increase oversight of how businesses are performing.
Ensuring that staff training and skills are up-to-date is critical to promoting good customer outcomes. Relationship managers and others who interact with business customers need to understand what to look out for in relation to financial difficulties and what to do when they are identified. They also need to understand how to do this, including the importance of having good conversations. Soft skills training and coaching, such as how to use probing questions empathetically, helps to enhance conversations. This can be done in a number of ways, from utilising case study examples to show how a beneficial customer outcome was delivered, to having staff participate in call calibration sessions so they understand ‘what good looks like.’
By thinking about how they can support their business customers, banks and lenders will be able to make a positive contribution during the cost of living crisis. This could make the difference between SMEs not just surviving but thriving into the future. When things do go wrong, the early identification of difficulties gives the best opportunity for the bank to work with the SME to get back on the right track. And it is important for the industry to remember that it is not just what you do, but how you do it. This means having staff who understand the need to offer support in an empathetic and open way, to encourage customer interaction and deliver good outcomes.
