In this blog, we are going to look at the stigma that is attached to being in debt. It is going to cover considerations that will apply to both the creditor and the debtor. We feel both these perspectives are not given enough attention, despite efforts by regulators and other professionals who seek to dislodge what appears to be a very stubborn socially constructed problem, the stigma that is attached to being in debt for people and companies.
Although debt is going to be the focus of today’s blog, stigmas are far from limited to the topic of financial problems. Topics that are often affected by stigmas are regularly covered in popular media such as sex, addiction, homosexuality, social class and even people’s body types. Though it rarely gets described as such because what makes a stigma a stigma is how it exists so implicitly in the human psyche.
Stigmas can be characterised as something that will likely bring about feelings of embarrassment or discomfort if it was discussed. This helps to explain why open conversations about being in debt are hard to find and usually uncomfortable to start with someone. But if there is one thing we know for sure, you cannot treat debt like an attention-seeking human. It will not suddenly realise that it is not being given any attention and then disappear one day.
So, allow us to dig a bit deeper into that approach and how it can look from the perspective of the consumer. We have seen in the news, several times recently, the potential problems associated with the relatively recently shift to buy-now-pay-later and how it is allowing some consumers to lend beyond their financial means. It is not the intention here to try and attribute blame for that problem to either of the parties involved but what we are concerned about is the consequences on the consumer.
Imagine the thrill of having come home with a handful of bags full of new clothes has come and gone and month-end arrives and its time to pay the bill. We are not suggesting that catastrophe ensues immediately, but a gradual struggle begins that results in some adjustments having to be made to meet the new commitments that they have entered into. Perhaps they start to decline social invitations they would ordinarily have agreed to, or change their payment method on existing credit cards from pay in full to the minimum amount.
Things can become even worse when consumers start to borrow even more just to ensure they meet their minimum payments on their existing financial commitments until in the worst-case scenario they eventually start to miss payments and their lenders and creditors inevitably start sending reports to credit reference agencies that they have missed payments on their credit agreements. This can put their ability to obtain further credit in jeopardy and the struggle goes from bad to worse.
But when should the conversation start? That is the key question. Well, it looks like BNPL is not going anyway anytime soon, whether that it is right or wrong, so we cannot rely on lenders to place the needs and welfare of potential customers ahead of their pursuit of continually increasing revenues. The onus is therefore unfortunately on the consumer. Thankfully we believe there is plenty of help at hand, and that is something that is key to challenging the stigma.
There is a wide range of organisations that exist to help people with problems relating to personal debt. Some examples of this are Citizens Advice and StepChange. We know, having worked with these organisations in the past that they, and the other organisations that offer a similar service, are not there to judge someone because they are in debt. They are simply there to help. We do hope that this will help anyone who has up until now felt deterred from contacting them.
Another maintaining factor inherent in the stigma of being in debt is the concern with what others would think if they found out that they were in debt. Well, in the case of organisations like StepChange and Citizens Advice, they are bound by strict data protection and privacy policies and legislation, as the creditors and ledgers of the consumers. This means that any information about a person’s financial circumstances will only ever be discussed with the organisations that the consumer has given their consent to.
We believe the conversation should start as soon as that first feeling of anxiety arises alongside the awareness of the up-and-coming payment that it is going to be a struggle to meet, which is a sign that but if that is a little ambitious then we certainly recommend speaking to someone before payments start getting missed as an absolute necessity. Recovery from financial debt is certainly achievable but it has to start in these, brave, moments. Starting once payments have already been missed makes things more difficult in the long run.
It might seem odd that a company that so often acts on behalf of the creditor seems so concerned with the consumer. However, amongst other things, it is a regulatory requirement for upstanding companies such as JSP Credit Management to have due care and consideration for all parties involved in the debt that is the object of our involvement. Yet, it is more than a regulatory requirement for us too. We are more invested in human wellbeing than that.
If you are a creditor reading this and subtly wondering if there is a way of managing the seeming conflict of interest between you and the person from whom you were expecting a payment that has not been forthcoming then the answer is an absolute emphatic yes and we would happily discuss that with any client who wishes to know more but in focussing on the topic at hand this should not serve as yet another deterrent to any company that has been wounded by the non-payment of an invoice they were owed, of any amount.
Companies themselves also suffer the stigma of addiction. There is a whole industry dedicated to trying to rescue struggling businesses who may have conveniently overlooked some of the warning signs for one reason or another. A two-week payment on an innocuously valued invoice by a long term customer might seem easy to ignore but if that delay has arisen due to cash-flow issues and their next order is a large one, then you had better hope that a two-week delay on payment is the only problem that comes out of that next order.
One of the reasons being that there is a stigma attached to being in debt and it can be difficult for some companies and some industries to talk about outstanding payments. We have experienced this phenomenon first-hand for many years and this blog does not intend to try and embarrass any professionals working in certain sectors however I suspect some of our readers will relate to what we are saying. In some industries, it seems more important to have sales from the same customer that is consistently failing to pay some sometimes very old debt on the ledger.
We have heard senior leaders of some relatively large organisations explain away such an approach by claiming that their client, with whom they have significant amounts of aged debt outstanding, “can never go bust” so it's nothing to worry about. We can hardly think of any organisation that is immune from the risks of cash-flow problems so we would suggest that is a risky way of avoiding having a difficult conversation. Plus, there is usually also little in the way of a contingency plan if anything serious does happen.
Our view is that everyone is concerned with cash flow but not everyone is comfortable talking about it. Revenue does not predict profit and profit does not predict cash. Some of the highest earners in the world have been exposed for doing things that appear to be in the pursuit of maximising their cash and some very large companies have found themselves in some difficult circumstances due to cash-flow problems. It does just happen to certain industries or companies of a certain size.
There is a great deal more to be considered when it comes to cash-flow management but we hope we have given you a brief insight into it above. If you are interested in knowing more about ways to do that then get in touch for a free no-obligation discussion at www.jspcreditmanagement.co.uk or contact us on 01827 66820 to discuss your needs.