Credit Executives Coping Through COVID-19

March 26, 2020

Since the Coronavirus first hit China, it began impacting trade around the globe. As the virus grew to its current pandemic status, nearly every industry in the U.S. also began to feel the effects. Today, we are all working under a high level of uncertainty, but it’s nearly certain that most businesses will not be operating normally (if at all) for quite some time.

To help gain some clarity in this time of confusion, we asked a small group of our clients to share what, if anything, they have begun to do differently in their credit departments to cope with the current crisis. In doing so, we asked the following questions:

Have you stopped selling in certain markets?
Are you extending payment terms for customers?
Are you putting new applications and/or line of credit increases on hold?
Are you insisting on payment in advance or credit cards now? Any other things you have instituted from a Credit & Collection standpoint out of an abundance of caution?
How about placing accounts for collection a little earlier? (we had to ask!)

We have summarized responses below, and have focused the content by industry where possible.

Have you stopped selling in certain markets?

Collectively, our clients have not yet stopped selling activities in most markets, but a few have indicated that they are looking more closely at particular industries (to assess their impact from COVID-19). One of our manufacturing clients indicated that they are restricting their international exposure to secured transactions only for the time being.

A client in the promotional products industry indicated that they have not stopped selling, but that they have increased the necessary lead times on production. For example, they have extended existing 5-day lead times to 10 days.

One of our F&B clients indicated that their retail and grocery volumes have increased, significantly, but that their foodservice volumes have dropped to almost no volume being ordered or shipped. Many of their customers are seeking assistance in moving excess inventory.

Are you extending payment terms for customers?

By and large, most companies are not offering extended payment terms. However, there are a few who are doing so on a case-by-case basis in conjunction with a thorough case review and only temporarily. The expectation is that requests for extended terms will only increase.

The best advice we can provide at this time, is to be prepared for these requests by reviewing your accounts ahead of time and have your responses preplanned for both key/strategic customers as well as for those who are already in shaky standing.

Are you putting new applications and/or line of credit increases on hold?

The majority of the clients we surveyed indicated that they are not making any changes to their credit applications or lines of credit processes yet, but they anticipate that they may need to do so in the weeks to come.

One client, who is a wholesale distributor of business supplies, told us that when making collection calls they have been getting a number of responses from customers that their payments will be delayed due to the pandemic; they said they are being as supportive as they can. They also said that they have been keeping track of the customers with cash flow issues as well as those who have requested extended terms so they can concentrate on those accounts when the economic environment returns to normal.

One of our Food & Beverage clients said that they don’t typically receive a lot of new applications so it’s not much of an issue. However, they are temporarily increasing credit lines, largely in retail and grocery, to accommodate increased demand. This is done under the “temporary excess credit provision” of their credit policy.

Are you insisting on payment in advance or credit cards now?

Most clients surveyed said that they are not currently insisting on payment in advance, or requiring customers to pay by credit card. They recognize that as the pandemic evolves, the situation may change; however, most are still following normal procedures ” selling on terms.

A number of our manufacturing and wholesale clients indicated that while they are following their standard protocols at this time, they are looking at their customers more closely, on an individual basis; and they are becoming stricter with accounts that were already past due.

The Global Credit Manager for an equipment manufacturer told us that they are requiring prepayment for new shipments to clients who need product immediately, but are currently carrying a past due balance.

The situation does not appear to be very different for the professional services industry. One of our financial services clients said they are only requiring prepayment for customers that do not qualify for credit. The Director of Revenue Management of another professional services firm said they are encouraging their clients to access their company’s new payment gateway, which enables real-time viewing of invoices and electronic payments, along with functionality to contact their assigned credit analyst.

Contrary to the above, the Credit Supervisor for a regional foodservice company said that they are asking for prepayment via credit cards as much as possible at this time.

Any other things you have instituted from a Credit & Collections standpoint out of an abundance of caution?

There seems to be some alignment between clients in like industries here. Most have similar concerns about how the impact of the COVID-19 pandemic will impact risk to their customer base. Primary fears are around payment delays, nonpayment, and project or company closures.

One of our distribution sector clients is completing risk reviews and tracking accounts that have already informed them that the virus will delay their payments. A professional services industry client is proactively reaching out to all of their customers, especially those in vulnerable industries, to stay ahead of potential issues and delays.

Our publishing clients are tracking customers in certain markets while keeping watch of what is happening for businesses in these particular sectors. One client is also maintaining a tool to keep track of special requests; others have created new dispute codes in their systems to track the population of customer issues.

Manufacturers and wholesale distributors are also looking at customers in certain industries more closely, specifically customers in the travel industry, and those that supply consumer retail outlets. One such client indicated that they will be increasing bad debt reserve significantly. Their main concern is with industrial clients, having noted that “smaller accounts are more likely to close, but if one large retail account goes under, the effect will be significant.”

A number of other manufacturing clients mentioned that they are taking extra time to review accounts and are implementing stronger controls, especially for high-risk customers or for those who have large credit lines.

The Director of Credit for a wholesale distributor of business supplies is taking a deep dive into several industries, such as brick and mortar retail because of mass store and mall closings. He and his team are also paying attention to the energy and natural resources sector, which is currently under attack by Russia. Russian energy exports are threatening domestic shale producers. They are concerned that companies in these industries, that were already struggling, will fail. This credit director stated, “we want to understand our exposure and make a business decision on those companies.”

How about placing accounts for collection a little earlier (of course, we had to ask!)?

We received a mixed bag of responses to this question. A handful of clients mentioned that they either always advocate for placing claims early ” or that doing so (now) is currently being discussed as a way to get ahead of any future fallout. Others are handling this situation more sensitively, supporting customers in a manner that would be similar to how localized disasters, such as hurricanes, fires, floods and the like are handled.

Conditions are changing daily, and they will likely continue to do so until we can “flatten the curve”. To do our part to stay on top of these changes, we intend to re-survey these clients with the same six questions in the coming weeks to determine if there is further regression or progression in their credit and collection practices.

If you would like to participate in this survey, or if you have any questions, please feel free to send an email message to Domenic Di Loreto at [email protected]. All responses will continue to be kept completely confidential.

It’s our commitment at ABC-Amega to stand beside you every step of this journey and Make Good on the Promise to do our part to help creditors cope through the Coronavirus crisis.

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The information featured in this article was provided by ABC-Amega clients who were surveyed between Thursday, March 19, 2020 and Monday, March 23, 2020. A total of 20 companies provided survey responses; and the following industries were represented: Food & Beverage; Health Care Manufacturing; Wholesale Manufacturing; Professional Services; Publishing; Software; and Transportation.

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Credit Executives Coping Through COVID-19 | PART 1