The world changed for North American creditors on March 16, 2020. Most of the companies we work with had robust Business Continuity Plans. Still, none of the companies could have foreseen or adequately prepared for the next sixty days. While most business owners, for whom we work, are cautiously optimistic, the next sixty to ninety days are going to be a tumultuous time for almost every industry.
Here Is an Overview of What We See in The Credit Marketplace:
1. Permanent layoffs of mid-level and Senior credit professionals. At a time when companies will be required to help customers by extending trade credit, mid and senior levels of staff being cut due to costs, leaving the extension of credit to finance teams or junior credit analysts with inadequate experience.
My Suggestion: If you are currently facing a staff shortage and seem to be overwhelmed with several processes, wine- I mean automation- is your friend.
There are many tools on the market to choose from that automate things like demand letters, phone calls, emails and reminders, and we have also made our software available to credit and finance professionals. As far as we know, it is one of the only collection programs that was created by professional collectors and credit managers.
2. Trade Credit insurers are running for cover. Theirs is going to be an ugly world for the foreseeable future, with many insurers exiting the market. If your firm insures its receivables, expect your premiums to jump, and experience difficulty in getting coverage for many firms where you never had issues previously.
My Suggestion: I recommend reaching out to trade credit companies now and get quotes for coverage. Take into consideration the cost of insurance versus managing the receivables on your own. In many instances, careful due diligence upfront and then continued monitoring of the health of your customers can be less expensive.
3. Speaking of trade credit, insurers are pre-emptively publishing the names of firms that they expect to enter into receivership. We see receiverships primarily in the retail sector, but also in construction and transportation. We anticipate that this trend to continue in the hospitality industry as well.
My Suggestion: Keep a close eye on this list if possible and watch for your customers. If you hear rumours of your customers’ financial struggle, you may want to move quickly to legal action or third party collections, depending on the situation. If you are a current customer of PCM, we publish a list of commercial claims assigned for recovery each month.
4. Expect to see an influx of new credit applications. With the unemployment of so many of our citizens, many will try their hand at self-employment and will require trade credit to kick-start their new venture. In our opinion, the increased frequency of credit applications, combined with the inexperience of the remaining credit analysts, will lead to a significant turnover of credit teams due to stress, putting further pressure on finance teams.
My Suggestion: Please– do not cut corners on new credit applications. If your team is new to the credit world, properly train and coach them on how to assess credit applications. Additionally, I always suggest enlisting the second opinion of an unbiased third-party, especially with larger sales. (Please choose a firm with expertise in this area- you can review our page on this)
5. The term “Banker” will be added to your job title. Commercial trade credit will be the most popular currency of 2020. Until the banks can further ascertain their exposure and feel comfortable about business valuations, expect commercial bankers to be a little skittish about doing new deals. Companies that offer extended repayment terms will become favoured suppliers.
My Tip for Purchasers: Don’t be offended if a long-time supplier suddenly asks you to fill out a new credit application and review your financial statements. Uncertain times call for a re-examination of all we thought to be true. Your suppliers’ bankers are also nervous, and they will be pressuring your supplier to renew the credit applications and perform financial stress tests.
The bottom line: When managing your company’s receivables, re-test your previously held assumptions about existing customers’ credit-worthiness. If your firm had to let senior credit staff go, due to cost-cutting measures, know that certified credit professionals are available for project or short-term engagements through outsourcing credit service organizations. Now might be an opportune time to upgrade your accounting systems to automate the more frequent and mundane credit-related tasks, so your finance team is free to focus on higher leverage activities.