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Mountain States Commercial Credit Management – elevated credit and collection services since 1988. Call us to improve your cash flow.    800-457-8244

COVID-19: The Shock and Aftershock for Debt Collections

covid-19

What started as a global health crisis is now a global economic crisis as well — and the financial ramifications will likely be around much longer than the health ones. One thing is certain: It’s going to be a rocky road for the financial services sector, including the collections industry. There will be an increase in uncollected debt, for sure. But it’s how collections teams handle debt collection in these challenging times that will affect not only the bottom line but the company’s reputation as well.

The fallout of COVID-19

As the effects of the pandemic ripple across the globe, virtually no business or industry is unaffected. We have already seen supply chain disruptions, decreased consumer spending, and decreased productivity due to absenteeism and shutdowns. Many companies face disruption in their ability to repay debt, resulting in an increase in late payments and delinquencies.

Dealing with debt during COVID-19

When dealing with an increase in late payments and defaults, it’s important to be prepared. Analyze accounts to assess how likely they are to be impacted and how badly. Adjust policies and criteria for certain actions:

  • What criteria must be met before extending payment terms?
  • What terms should a lender demand as part of a forbearance agreement?
  • What line must be crossed before you proceed to collections?

Also, identify COVID-related and non-COVID-related debt so you can treat accounts appropriately. Be understanding of your client’s situation and consider agreeing on a payment arrangement. Being willing to negotiate can help preserve an important business relationship, as well as increase your chances of getting paid.

If an account proceeds to collections, check with your state to determine the status of judicial proceedings during the pandemic.

Going forward

As the fallout from COVID-19 settles, financial services professionals will need to adjust many policies and procedures for operating in a post-pandemic world. There is a great deal of uncertainty, which makes lending or extending credit risky business.

Extending credit will require in-depth analysis of the business.

  • What industry is the business in?
  • How has it been impacted, and how quickly will it recover?
  • Was its supply chain affected and how badly?

The models used to analyze credit in the recent past likely no longer apply to fully capture risk. Lenders will likely need to add new terms and policies to protect themselves.

No one knows yet the true financial impact of COVID-19. Being prepared for the inevitable uptick in problem accounts is crucial. Determine whether the problem is due to an event from which the business can recover or whether the effects are too significant to overcome. Having clear policies and benchmarks in place will provide guidance for dealing with these accounts consistently and fairly.

Need help managing your commercial credit risk? MSCCM financial experts can assist you. Contact us today.