Few things are certain about the economy, but there are two things we know for sure – there will be good times, and there will be bad times. Business downturn periods are inevitable, so rather than ignoring that reality, it’s best to prepare for it in advance. An organized, thoughtful credit department can help a home furnishings business navigate tough economic conditions and come out healthy on the other side.
Riding the Wave
It’s no secret that home furnishings businesses have been flying high through the pandemic years. With so many people stuck and working from home, home furnishings have been selling like never before. There is no overstating the devastation that the pandemic has brought, but there have been bright spots in the economy, and this industry has been one.
Of course, prosperity can’t last forever. There will be a business downturn to come, and the best businesses will prepare for that down cycle by maintaining proper control over their credit exposure. Preparing for a business downturn while the industry is still rolling along will put you in a great position to minimize the damage.
Three Key Points
Good economic times provide credit departments with some breathing room. You shouldn’t have many accounts in distress while home furnishings are selling so well, so there is room in the schedule to work on other matters. Consider the three points below as actions that will prepare your business for any market downturns to come.
- Reduce risky exposure. This point is tricky, because you may be able to take on more risk during strong periods of sales. When things are going great, it’s not a big deal to take on a risky account or two, as you have plenty of margin to cover any losses. However, if those accounts remain open and suddenly fall behind in a bad market, you’ll be wishing those holes were closed in advance. Go through your list of accounts and address any issues by collecting past due balances or reducing credit lines. You don’t want to carry more risk than necessary into a lesser home furnishings market.
- Encourage prompt payment. The thing about a market downturn is that you never quite know when it is going to arrive – and it could arrive suddenly. Collecting payments quickly is always important, even when the home furnishings market is strong. Offer some incentives for businesses to pay quickly so you can keep your open receivables number as low as possible. That way, if a market downturn hits without warning, you won’t be scrambling to recover money that could have been collected earlier.
- Diversify accounts. Working together with sales to diversify the retailer accounts that you serve can also help navigate a bad market. Most likely, some of your accounts will fare just fine through the business downturn, while others will fall behind – and maybe even go out of business. If you are leaning on a limited number of retailers while things are good, you may be exposed if those retailers struggle to get through the recession period.
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