EDITORIAL: Cost of collections hurts businesses, too

Media outlets and elected officials are heralding the indications of a re-emerging economy. To some extent, things are getting better, even here in the Las Vegas Valley. But for those who think the Great Recession’s effects have subsided, a tsunami-size splash of cold reality hit this week.

Josh Boak of The Associated Press reported that more than 35 percent of American adults — 77 million people — have debts and unpaid bills that have been reported to collection agencies, according to a study released Tuesday by the Urban Institute. In Nevada, 46.9 percent of adults hold debt in collections, the highest rate in the country. And as you might expect, it’s worse still in Las Vegas, with nearly half the adult population — a whopping 49.2 percent — dealing with a collection agency. Among the Metropolitan Statistical Areas cited in the study, only McAllen, Texas, had a higher rate of those in debt with collections, at 51.7 percent.

The study noted that the average debt in collections nationwide was $5,178, but again, Nevadans checked in with the highest average amount at $7,198, and Las Vegans were higher still at $7,246 — second-worst among metro areas, trailing only the $7,280 of Cape Coral, Fla.

Those are all incredible numbers, demonstrating just how many households have had to make painful financial choices while riding out the recession and its sluggish aftermath. To be fair, this also signals that many are simply living beyond their means. Equally true, some of these numbers are the result of strategic default. Some debts are likely being disputed, and a substantial portion of the debt in collections is probably due to medical bills. Regardless, it’s a staggering indication that a huge segment of the population is buried and can’t dig out.

No doubt, going through collections is awful for these households, but businesses aren’t exactly reveling in these numbers, either. Just talk to any business owner about the difficulties and delays in getting paid by a significant number of customers. This alone is holding back a significant amount of economic growth.

And that’s just for the businesses that are willing to have a collection agency pursue overdue debts. The Urban Institute’s numbers would be markedly worse — though much more accurate — if they accounted for the untold number of small businesses that don’t even bother dealing with a collections agency. These businesses, many with already thin profit margins, are simply eating those losses.

For businesses just hoping to continue functioning, the debts-in-collections numbers — and the overdue debts that never go to collections — are a very troubling sign for the economy. It’s not just people who are hurting. Businesses are hurting because they’re not getting paid. That’s not a good sign for the economy.