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Testing times for credit managers

Covid-19 has brought about many challenges, few managers would disagree. It is extremely difficult for credit managers to plan ahead due to uncertainties about when the pandemic might end and if business activity will bounce back quickly or not.

What is the consensus from Credit managers?

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The Menzies Creditor Services team recently hosted a virtual roundtable in partnership with the Chartered Institute of Credit Management (CICM) for some of its members – and the general consensus from these credit managers was very clear. There is no known outcome for this situation so we need to share our experiences and learn from each other. With most back in the office for at least one or two days a week, the mood from the delegates was relatively upbeat. However, just a day later, the government reinstated the guidance about working from home where possible, which is something that is understandably beginning to grate on a few people.

It has become much harder for credit management professionals to resolve issues as they arise due to being physically removed from the business and its customers. Every delegate agreed that staying close to customers and understanding the pressures their businesses are facing can help to keep credit lines open. Through increased communication and sharing of information, risks have been better managed, especially for businesses operating in overseas jurisdictions with different time zones.

Support measures have been a welcome relief for many

The Chancellor’s decision to extend government support measures for businesses as the pandemic continues and lockdowns continue to impact businesses will certainly alleviate some of the pressure. Easing pressure on cash flows by the decision to extend existing loan schemes from six to 10 years and allowing businesses more time and flexibility to repay will assist as well.

Simon Underwood - Menzies Accountant

Simon Underwood, business recovery partner at accountancy firm, Menzies LLP acknowledged

“The key to survival from a cash-flow perspective is to focus on meaningful revenues”. In addition, he stated “Some businesses have been able to pivot to make the most of online channels in response to shifts in consumer demand, and this approach should continue,”.

Some businesses are finding this easier than others, particularly those with e-commerce platforms and businesses in the logistics sector. Keeping funds flowing into the business is critical, particularly if revenues have dipped. Customer insolvencies are a distinct possibility, however credit managers know that a softer approach is needed rather than heavy handed debt collection remedies .

At the beginning of Covid-19, most credit managers reviewed their customer base closely to consider how each customer might be affected. As the pandemic has continued, a customer’s cash position has been kept under continuous review in order to understand whether it is just comprised of support funding or meaningful revenues. Two way communication between client and credit manager is important to ensure that the customer is not pushed to the point of insolvency unnecessarily, as creditors will not just lose some of the money they are owed, but future revenues too.

There is no easy way to say it:

It is clear that some tough conversations will need to take place in the coming months, with ‘force majeure’ clauses being invoked in many commercial contracts and cash-flow pressures set to worsen as support schemes are removed. Sue Chapple Chief Executive of the CICM proposed that the extent of the ‘ripple effect’ of coronavirus-related issues is likely to have a long tail for the credit management industry. She also said “There are challenging times ahead. The situation remains uncertain and really knowing your customer has never been more important. There is no accurate data available confirming what the post-pandemic future will look like across industry sectors, so credit managers definitely have their work cut out”.

Communication is critical in these trying times

A Menzies icon of a telephone

Credit managers present at the roundtable agreed that staying close to customers will be critical moving forward. Customers are encouraged to be as open and honest as possible if, for example, they need to request a change in payment terms. Sharing information including profit and loss accounts and other key management data with trade insurers can help diffuse some of the financial pressure. In some cases, credit managers have chosen to change broker and switch insurers in order to provide the right cover for the business and its trading customers, as relationships have become strained.

Rather worryingly, some businesses are continuing to struggle to provide a product or service that consumers no longer want or are unable to use for now. In those instances, staying cash flow positive has become almost impossible, even with the best of planning. With the prospect of a spike in corporate insolvencies just around the corner, credit managers shouldn’t be afraid to reach out to insolvency practitioners for advice and assistance.

About Menzies Creditor Services

We can advise on the best way for you to protect your position when one of your debtors enters, or is approaching, insolvency proceedings. Utilising our extensive experience, we work in collaboration with you, drawing upon our industry and insolvency sector knowledge, to improve your financial outcome.

Our services to creditors include assisting with retention of title claims, providing representation at creditor meetings, forensic investigations, raising finance, financial restructuring and removing the administrative burden – this includes completing and lodging claim forms, monitoring dividend prospects and analysing all Insolvency Reports and correspondence.

To discuss how we can support you, please get in touch with Bethan Evans, Head of Menzies Creditor Services.

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