Headlines about an impending economic recession as a result of the novel coronavirus (COVID-19) are becoming more dire, prompting countries to suspend commerce and education in an effort to “flatten the curve.”
Economists report that economic growth will slow sharply, unemployment levels will rise, and profit growth will turn negative. Meanwhile, government revenues will be severely reduced. All of this will create challenges for all economies around the world in the short and long term.
For the economy
it was an abrupt departure from where it was just two months ago. While there were some red flags, major segments of the economy, such as the labor market, looked very strong, while investment prospects improved following an easing of external trade tensions.
But this is an interesting time to think about optimizing credit limits to accelerate growth. The economic fallout from the coronavirus now looks set to overwhelm any economic growth momentum that existed before the outbreak.
The abrupt business closures and extreme social measures adopted to curb the virus have permanently altered the short- and long-term growth and stability prospects. This impact will result in immediate negative effects on the labor market, revenue and earnings results, financial stability, functioning of and access to credit markets, business and consumer confidence, and investment prospects.
Trade credit management and corporate debt collection
It is rare to see a simultaneous disruption to both supply and demand. However, the abrupt nature of the current disruptions has given businesses and households less time to react and plan.
Certain conditions should provide some comfort for a special database recovery process, including a well-capitalized banking system that is more resilient than during the 2008 global financial crisis.
Still, we face an unprecedented global risk as the scale of the initial economic impact of store closures and self-isolation continues to grow. Some companies in certain industries will experience more serious cash flow problems because they have been unable to record revenue (restaurants and bars, for example), and therefore unable to pay their bills, much less their employees.
Now is the time for finance and credit
teams to be flexible and forward-thinking about what they can do to better how data can boost corporate marketing manage cash flow during this economic downturn:
- Consider supply chain data: Credit professionals are used to looking at their clients’ credit data to consider their creditworthiness, but it’s now important to also consider supply chain data as part of their comprehensive risk assessment. It’s not enough to know the financial strength of your customers – you now need to know the financial health of your suppliers and your suppliers’ suppliers. If your customers rely on just a few suppliers, they may face increased risk if alternative methods of production are not available. What’s your plan B? As a global leader in business decision data and analytics, CIAL Dun & Bradstreet offers third-party risk management and financial s dating data olutions to provide businesses with a comprehensive view of upstream and downstream risk.
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Maintain the relationship with your customers:
- Remember, we are all in this together. We have to keep commerce going, and sustaining cash flow flexibility in times of crisis may be more appropriate than strict measures against late payers. Talk to your customers to help them understand that you need to stay in business, too. If your company has the capacity, you may be able to waive late payment fees on accounts up to 90 days past due for industries known to be in serious distress. Now might be a better time to set up a payment plan on severely delinquent accounts rather than placing a credit hold and sending the account to your third-party collection agency. This is also where predictive data and scores can provide insights needed to predict whether a company can pay late. It is also important to review your company’s pricing and margins to see what you can “afford” to be flexible. This means more internal partnership across finance, sales, and operations to keep everyone aligned on projected cash flow.
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Perform ongoing portfolio management
- As we do our best to serve our customers during this pandemic, understanding your customers’ financial situation will allow you to better manage your relationship with them. Setting up alerts to monitor credit risks can be crucial right now, particularly if changes will have a material or financial impact on your business. It’s important to be notified of deteriorating credit scores and legal events (such as lawsuits and charges, which may signal a looming bankruptcy). Monitoring can help you stay ahead of additional circumstances that may require a level of decision-making and business preparation that would normally be overlooked during a positive season.
- Back to basics with credit essentials: The fundamental practices employed for many years are again prevalent in these turbulent times. While we have automated analytical solutions to assist credit teams, this is complementary support to comprehensive credit analysis. Analysis should focus on the basic principles of credit management: character, capacity, capital, terms and collateral. Certainly, terms are a primary focus, as this variable requires consideration of the economic impact faced by your customers, with variables such as their industry, supply chain and geographic location.