The current unemployment level of 4.4% is around the lowest it has been since the months leading up to the financial crisis of 2008. This seem like great news. More Americans are working. More companies are expanding. The economy is growing, but growth can sometimes spell trouble for credit departments if is not handled correctly.
The calm before the storm
So this sounds great for all those businesses who are waiting for their accounts receivables to finally come in. They sold particular business goods on credit, trusting that they would be paid at a later date. With this increased revenue, businesses around the country should have the cash on hand to make good on their past debts and balance their books. Many creditors are happy now, and the debt collection business just became a bit easier.
However, this may only be temporary. Companies are growing, so they buy more goods from creditors and hire more employees to handle the load. What can happen, though, is that some businesses do not forecast their needs appropriately and tend to buy and hire more than necessary.
So instead of hiring the two workers that are ultimate needed, the business ends up hiring 4 or 5. Instead of buying x number of materials on credit, they buy 2x. This all has a way of working out in the short run, but when growth either slows or is not as large as was expected the bills start to pile up.
So sure, low unemployment numbers can be great – but just don’t let your customers get too ahead of themselves.