Are you concerned about your company’s credit score and the corporate payments you make by credit card? There may not be such need for alarm: research into individual financial habits has indicated that spending habits don’t correlate as closely with debt as you might think.
The American National Foundation for Credit Counseling (NFCC) recently conducted a survey into attitudes towards credit and debt. It found that respondents were more ashamed of having debts on their credit cards than they were of their weight – at a ratio of three to one.
This has been followed by a ‘The Debt Disparity: What Drives Credit Card Debt in America’ report by think tank Demos. They monitored two almost identical sample groups, the only difference being that one group held credit card debts. An identical cross-section of demographics, genders, ages, incomes and ethnicities was selected for both groups.
The Demos conclusion is eye-opening: “Contrary to popular belief, we find little evidence that households with credit card debt are less responsible in their spending habits than households that do not have accumulated debt.”
The studies have been carried out in American households, but the demographics of individuals surveyed could just as easily have been comprised of European citizens and/or business owners. A similar study by the European Central Bank in 2013 showed that non-mortgage debts were more prevalent in higher-income households, and that debt-to-asset ratios are similarly high in cases of a single occupant, a primary occupant below 35 or low-income households in the bottom quintile. Replace ‘household’ with ‘company’ and the results could well be much the same.
Public and private debts in Europe are a continued point of discussion, as they create a cycle of slower economic growth. News that personal situations don’t automatically preclude the burden of debt - individual, corporate or otherwise - should be encouraging to companies attempting to optimise their cash flow.
Yet more research into the issue has shown that education is one of the biggest factors in the accumulation of credit card debt. Where card holders simply aren’t aware of how their credit works, or their obligations, they could take on more debts than they can manage.
Financial experiences can also contribute to the accumulation of debt. For business, the risk of debt through unemployment will naturally not apply. Even so, the discovery that those without any credit card debt were three times more likely to have savings, for example, should give decision makers pause for thought.
No matter where a company is based, its size and the amount of credit or debt it holds, ultimately a human being is making the financial decisions – and that person, regardless of their background, needs to be fully informed and ready to make tough choices. Clever debt management doesn’t avoid debts altogether, and for many businesses that would be impossible. Rather, it minimises and negates them with smart payment processes and financial data analytics.
A 2013 study commissioned by Chase suggested that spending is a ‘hardwired’ trait measurable by activity in the brain. The impact that personal attitudes to finance can have on a business bank balance and revenues shouldn’t be underestimated, and a savvy person in charge could be the difference when turning a company’s fortunes around.
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