We encourage all of our clients to maintain a high degree of awareness and alertness as to the aging of their own current accounts receivable. Those businesses taking a more passive position with slow paying customers in an effort to support their current sales volumes will eventually pay the price and experience the greatest amount of fiscal pain as overall economic uncertainty continues and the global macro-economic cycle looks to find a bottom.
A recent report released this past month by Moody's Analytics entitled Storm Clouds Gather Around Canadian Consumer Credit concluded that the risks facing the financial system are mounting. A deceleration in the global recovery this year will weigh on Canadian exports, equity prices and employment opportunities. Slowing income growth and rising interest rates will put greater pressure on Canadian households, who will see the cost of debt servicing eat a larger share of their earnings. Rising debt service costs create an upside risk for bank revenues, but Canadian households' ever-rising leverage ratios have left them with little wiggle room to afford higher interst rates, suggesting that delinquency and default rates will rise.
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