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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

Managing Credit Risk During COVID-19

The sudden and unexpected arrival of COVID-19 has thrown the economy into turmoil. Cash-strapped businesses may have to decide between paying employees, landlords, banks, or vendors. The inability to timely bill, collect overdue debt, and obtain supplies likely will hinder efforts to generate revenue and grow as well. There are a lot of unknowns ahead, but it’s important to stay informed of emerging risks. Adjusting your credit risk management procedures and policies and remaining diligent with your accounts receivable and collection practices are great proactive measures. Here are some additional steps and tips to consider.

The COVID-19 impact

The economic impact of the COVID-19 pandemic will continue to be felt for many months, possibly years.  According to Moody’s Analytics baseline economic forecast, “real global GDP will fall by 4.5% this year as a result of COVID-19. The company also predicts that it will take until mid-decade for the economy to return to full-employment.”

But not every business or industry sector has been hit equally hard. A lack of consumer spending will likely severely weaken the credit risk profiles of companies in the hospitality, automotive, real estate, and retail industries. Healthcare, pharmaceuticals, agriculture, defense, and utility industries may be less affected. Disruptions of the supply chain likely will be challenging for construction and manufacturing companies as well.

Credit risk analysis and management during and after the pandemic

Credit risk analysis models are helpful for making sound credit decisions, but they should not be static. It’s important to keep them updated as financial situations change. With so much uncertainty surrounding the economy right now, and all the businesses undergoing drastic and sudden changes in their financial status, you’ll need to gather the most current data available to make sound credit decisions. Data-driven decision-making models powered by artificial intelligence (AI) have become useful tools for predicting a customer’s future ability to repay debt owed. Also, when making a credit decision, consider any government support measures that can reduce some of the risk.

Steps to stay on top of accounts receivable

It’s likely that you will experience an increase in late- and non-payments as a result of disruptions caused by COVID-19. It’s important to closely monitor your accounts receivable and contact the person responsible for paying invoices at the first sign of a problem. Keep communication channels open with customers in financial distress. The more you know, the better you’ll be able to assess the situation and probability of debt repayment.

Other tips for handling accounts receivable during these uncertain times:

  • Modify payment terms for new orders or risky customers: Ask for advance payments, cash on delivery (COD), or more frequent or stricter payment terms.
  • Seek assurances: If the customer already has a contractual agreement, manage the risk by asking (nicely, but firmly) for assurance of their ability to continue payments.
  • Focus on customer retention: Balance any remedial measures with the desire to maintain customer relationships after the crisis has passed. Be willing to negotiate terms.
  • Stay informed about judicial proceedings during the pandemic: If an account proceeds to collections, be sure to check with your state to determine the status of judicial proceedings during the pandemic.

If you don’t have the resources or time to deal with uncollected debt, consider hiring a professional debt collection service. The knowledgeable experts at MSCCM can increase your chances of getting full or partial payment for customer debt.

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