November 2014 saw borrowing figures from UK consumers rise to its highest level in 7 years, according the Bank of England.

Credit card companies are coming under fire from the Financial Conduct Authority for pushing increasingly attractive deals and balance transfers whilst banks have been criticised for dropping loan and overdraft rates.  The scramble by banks to attract new customers has resulted in massive growth of unsecured borrowing not seen since 2005, taking the debt to an estimated £1.25bn.

Good and bad news for the UK economy

There are two ways to look at the news.  Whilst on one hand, the rate of borrowing does show an increase in consumer confidence but many worry that a looming debt crisis is on the horizon for many.

Looking deeper into the statistics, it is encouraging to see that many consumers clear their credit bills each month.  Banks aren’t extending credit limits yet either, keeping borrowing within manageable ranges.  But, there is concern over why people are borrowing in the first place.  Evidence shows that many consumers use credit to straddle the gap between pay cheques, using lending to pay for household expenses rather than luxury items.

Consumer helplines such as StepChange and the National Debtline are at the front line of this change in borrowing habits from consumers, and expect to see an increase in calls for help as a result.

January could see another borrowing spike

January is always the financial hangover month for many following the expense of the Christmas and New Year period.  Most people have a long wait until they have money in the bank again following an often-early Christmas salary and late January payday.  Borrowing may well hit another peak at the end of the January as a result.

Debt recovery advice for businesses

What can businesses do to avoid cash flow problems from consumers not settling their accounts?

Debt recovery experts P&J Consumer Debt Services offer some useful advice to business owners:

  1. Get in touch in early January.  Consumers will pay the companies that push the hardest, first.  If they are struggling with meeting all the demands, they’ll prioritise on who they pay so be firs tin the queue.
  2. Keep communication open with debtors.  Don’t wait until debts become too overdue to get in touch.  Find out what the situation is from the moment an invoice exceeds its terms.
  3. If necessary, restrict further spending on account until invoices are cleared to avoid an increasing problem – for the consumer’s benefit and cash flow of the business.

To find out more, get in touch with P&J Consumer Debt Services.