Can Your Business Survive If Your Customers Don't?

I have to admit, even though I had predicted the impacts of changes that were occurring within the federal government, I was ill-prepared for the drastic and dramatic impact it would have on my customers and even my own business. Over half of my clients are government contractors, SBA borrowers, grant recipients, or are working toward that goal. Earlier this year, many of them were blindsided by cancelled contracts, frozen funding and the elimination of grants or programs their companies were depending on. While I knew they would be impacted, I seriously misjudged how much, and how their losses would dramatically skew my own bottom line.

As small business owners, it can sometimes feel like we just get our feet back on solid ground when someone or something yanks that rug right out from under us again. While the pandemic was horrible for most businesses, mine thrived because I was able to pivot and help companies who needed to qualify for PPP and EIDL funding. But watching as companies have their lifelines cut right out from under them? I never could have predicted the magnitude of the failures impacting my clients.

Millions upon millions of dollars in cancelled contracts, dropped grants, frozen funding, increased costs and diminished credit lines, exacerbated even more by customers who are suffering losses of their own now paying late, pausing orders or cancelling them altogether. And the dominoes are still falling...

I knew Starpoint couldn't be alone in this predicament.

As it turns out, economic uncertainty seems to be a prominent theme for 2025, particularly in the context of the US and global economies. Various factors, including rising tariffs, policy shifts and geopolitical tensions contribute to a fragile and uncertain economic outlook. While most economists encourage close monitoring of economic conditions and preparing for worst-case scenarios, not every business has been able to safeguard their corporate credibility.

Can Your Business Survive If Your Customers Don't?

Statistics are showing an increase in personal and business bankruptcy filings in the US and global markets.

• The first six months of 2025 showed total bankruptcy filings were up 10% compared to the first half of 2024. Individual Chapter 7 filings increased by 15%, and Individual Chapter 13 filings increased by 3%

• In the twelve months ending in June 2025, total US bankruptcy filings increased by 11.5% compared to the previous year. Business filings increased by 4.5% to 23,043 cases, and non-business (consumer) filings increased by a staggering 11.8% to 519,486 cases.

• Global bankruptcies are projected to increase by 6% in 2025 and 3% in 2026, following a 10% increase in 2024.

While Starpoint tends to focus more on the aspects of commercial credit, we can't ignore the devastating impact of individuals or businesses being unable or unwilling to repay their outstanding debts. We worry because we don't just help our clients get more and better corporate credit, but also aid in adding income opportunities to help them pay for that credit.

On The Business-To-Consumer Level:

Consumers are abandoning debt at an alarming rate, often due to financial hardship, such as job loss, reduced income, or economic downturns. Some consumers simply refuse to make payment by disputing the legitimacy of the debt, the accuracy of the invoice, or the quality of the goods or services received.

This often results in diminished communication, such as ignoring collection attempts if they feel harassed or distrust the collection agency. In rare cases, consumers are choosing "strategic defaulting" on invoices or loans, particularly if they believe the debt terms are unfavorable or the consequences of default are minimal.

But the overall consequences of consumers and small business owners opting to abandon their debt can be catastrophic on banks, lenders and businesses, impacting every level of the economic spectrum, from the smallest of small businesses all the way up to major banks and global conglomerates. Among these, small business owners will suffer the most because they have the lowest profit thresholds and tolerance for risk and loss.

On The Business-To-Business Level:

Unpaid debts can severely impact a company's ability to cover expenses, pay employees, and invest in growth. Increased difficulty in recovering debt reverberates more and more over time, since the longer a debt remains unpaid, the harder it becomes to collect. Businesses and lenders may need to pursue legal action to recover funds, which can be costly and time-consuming.

Business owners often feel forced to employ aggressive collection tactics that can strain relationships and damage their business's reputation, often decimating supply lines and eliminating future income they may have been relying on for growth and stability. It's a difficult tightrope to cross, weighing the increasing stress against an ever-tightening statute of limitations, especially if it means businesses may lose their legal right to sue for unpaid debts if they wait too long to start the collection process.

Key Elements Contributing To The Current Economic Uncertainty

1. Trade tensions and policy uncertainty

• Tariff policies: Heightened trade tensions, particularly surrounding U.S. tariff policies and potential retaliatory measures, are a major source of uncertainty.

• Disruption of global trade patterns: These policies are impacting global trade patterns, causing manufacturers and investors to delay decisions and reassess supply chain strategies.

• Global growth forecasts downgraded: The uncertainty and trade barriers are leading to revisions and downgrades in global growth forecasts, according to organizations like The World Bank and UN Trade and Development (UNCTAD).

2. Geopolitical instability

• Escalating international rivalries and conflicts: Deepening divisions between major global powers, along with rising conflicts in regions like the Middle East and Europe, are exacerbating economic instability.

• Disruptions to energy markets and supply chains: Geopolitical tensions in energy-rich regions can lead to disruptions in oil and gas supplies, causing price volatility and operational challenges for businesses.

• Impact on foreign investment and market volatility: Geopolitical risks can also lead to increased volatility in financial markets, impacting asset prices and foreign investment, especially in emerging markets.

3. Inflation concerns

• Tariff-driven inflation: The imposition of tariffs can lead to higher prices for imported goods, which businesses may be forced to pass on to consumers, potentially fueling inflation.

• Persistent inflation: Even before the latest tariff announcements, inflation, especially core inflation, remained above central bank targets in many economies, including the U.S.

• Sticky inflation and labor market dynamics: There's a concern that inflation could persist, even if the labor market weakens, leading to a scenario of stagflation – a combination of slowing growth and high inflation.

4. Other contributing factors

• Weakening business and consumer confidence: The overall uncertainty and instability are eroding confidence among businesses and consumers, impacting investment and spending decisions.

• Divergence between economic data: There's a notable divergence between "soft data" (sentiment indicators) and "hard data" (reported economic metrics), making it difficult to assess the true state of the economy.

• Government spending and debt: Rising government debt in some jurisdictions, like the U.S., could lead to higher interest rates and constrain future spending on infrastructure and other growth-promoting projects.

• Housing market challenges: Persistent housing shortages and slower new home starts, particularly in the U.S., are affecting affordability and potentially limiting economic mobility.

• Potential changes in immigration policies: Some analysts suggest that changes in immigration policies could impact labor force growth and potentially slow economic expansion.

• Rise of AI: While AI offers significant opportunities for productivity gains and innovation, its impact on the economy and labor market still presents uncertainties.

The World Bank notes that global growth is expected to weaken to 2.3 percent in 2025, a significant downgrade from previous forecasts. Navigating this environment will require businesses, governments, and individuals to prioritize resilience, adaptability, and proactive risk management to mitigate potential disruptions and foster long-term stability and growth.

On a more domestic level, combatting uncertainty requires every business owner, but small business owners in particular, dedicate time and energy into strengthening their own creditworthiness and stabilizing consistent growth over the long term. If you're having trouble navigating that process, give me a call. We may be able to guide you through a more reliable path.