credit today perspectives #4 · increasing customer requests for extended payment terms increasing...

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Panelist Christopher Rios VP Finance Solutions Dun & Bradstreet Panelist Dan Howarth Solutions Consultant Billtrust Credit Today Perspectives #4: Late Payments, Bankruptcies & Bad DebtsOh My! Panelist David Culotta, CFA Senior Manager Atradius Moderator David Schmidt Editor Credit Today June 2, 2020

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Page 1: Credit Today Perspectives #4 · Increasing customer requests for extended payment terms Increasing insolvency and payment default risks leading to bad debt provisioning Supply chain

PanelistChristopherRios

VP–FinanceSolutionsDun&Bradstreet

PanelistDanHowarth

SolutionsConsultantBilltrust

CreditTodayPerspectives#4:LatePayments,Bankruptcies&BadDebts…OhMy!

PanelistDavidCulotta,CFASeniorManager

Atradius

ModeratorDavidSchmidt

EditorCreditToday

June2,2020

Page 2: Credit Today Perspectives #4 · Increasing customer requests for extended payment terms Increasing insolvency and payment default risks leading to bad debt provisioning Supply chain

Whatchangeshavetherebeeninregardtohowfastcompaniesarepayingtheirbills,as

wellashowaretheypayingthem?

Page 3: Credit Today Perspectives #4 · Increasing customer requests for extended payment terms Increasing insolvency and payment default risks leading to bad debt provisioning Supply chain

Poll#1:WhathasbeentheeffectofCovid-19onyourcompany’sDSO?

Improved-it'slowerthanitwas2/29/20

4%

Stayedaboutthesame27%

Increased,butlessthan5days

21%

Increasedbetween5and10days

18%

Increasedmorethan10days30%

79Responses

Page 4: Credit Today Perspectives #4 · Increasing customer requests for extended payment terms Increasing insolvency and payment default risks leading to bad debt provisioning Supply chain

Paperbillsasapercentagearedecreasing

61.5% 57.5% 54.3% 48.2% 42.4% 40.3% 37.2%

2013 2014 2015 2016 2017 2018 2019

BillratiosPaperbills

eBills

Copyright2020Billtrust.Allrightsreserved.

Page 5: Credit Today Perspectives #4 · Increasing customer requests for extended payment terms Increasing insolvency and payment default risks leading to bad debt provisioning Supply chain

Copyright2020Billtrust.Allrightsreserved.

Page 6: Credit Today Perspectives #4 · Increasing customer requests for extended payment terms Increasing insolvency and payment default risks leading to bad debt provisioning Supply chain

2019CPAVolume

Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec

InvoicesDelivered

100+A/Pnetworks

Copyright2020Billtrust.Allrightsreserved.

Page 7: Credit Today Perspectives #4 · Increasing customer requests for extended payment terms Increasing insolvency and payment default risks leading to bad debt provisioning Supply chain

ConservingcashandstabilizingliquidityduringtheCovid-19crisis■  The State-specific stay-at-home orders and broad company shutdowns resulting from the spread of

Covid-19 have sent many companies into cash conservation mode.

■  Drawing down available borrowing capacity on credit facilities

■  Delaying capital expenditures

■  Restricting share repurchases and dividends

■  Halting business travel

■  Furloughing employees

■  Negotiating rent concessions

■  Applying for funds under the CARES Act

■  Extending payment terms with suppliers

■  Multiple approaches to payment term extensions depending on end markets served, existing state of operations, importance of the supplier to the supply chain, available liquidity, etc.

Page 8: Credit Today Perspectives #4 · Increasing customer requests for extended payment terms Increasing insolvency and payment default risks leading to bad debt provisioning Supply chain

Overthenext12to24months,howwillthebankruptcylandscapeevolve,andwhatshouldcreditorganizations

dotominimizelosses,bothnearandlongterm?

Page 9: Credit Today Perspectives #4 · Increasing customer requests for extended payment terms Increasing insolvency and payment default risks leading to bad debt provisioning Supply chain

THECORONAVIRUSCONTINUESTODISRUPTTHECOMMERCIALMARKETFORCINGBUSINESSESTORE-EVALUATECURRENTPROCESSES

Source:D&BAnalytics,April03,2020 COMMERCIAL IN CONFIDENCE

177M TOTAL NUMBER OF ACTIVE BUSINESSES

38M IN IMPACTED

GEOGRAPHIES

11M BUSINESSES IN

IMPACTED INDUSTRIES

Page 10: Credit Today Perspectives #4 · Increasing customer requests for extended payment terms Increasing insolvency and payment default risks leading to bad debt provisioning Supply chain

Source: Dun & Bradstreet Business Intelligence Reports

ANTICIPATED DECLINES

TransportationMostWidely

Affected40%

Q12020–ManufacturingandProcessing

19%

Q12020–RetailandWholesale

37%Q12020–CorporateServices

17%In E-commerce, Respiratory

Materials, Medical Equipment, and Supermarkets

For Retail, Wholesale, And Manufacturing

POSITIVE RESULTS

+20-30%

COMMERCIAL IN CONFIDENCE

WHILEMANYINDUSTRIESDECLINE,INDUSTRIESINGROWTHMODEREQUIREADIFFERENTAPPROACH

Page 11: Credit Today Perspectives #4 · Increasing customer requests for extended payment terms Increasing insolvency and payment default risks leading to bad debt provisioning Supply chain

TheImpactonSmallBusinessIsLikelytoBeSubstantial

Source:SmallBusinessPulseSurvey:census.gov

Page 12: Credit Today Perspectives #4 · Increasing customer requests for extended payment terms Increasing insolvency and payment default risks leading to bad debt provisioning Supply chain

Downgrades,debt,anddefaults:therisinginsolvencytrend

9

11

12

17

17

19

21

25

31

40

48

65

69

70

0 20 40 60 80

Germany

Japan

Switzerland

Denmark

Sweden

Belgium

Austria

Italy

France

Australia

UnitedKingdom

Netherlands

UnitedStates

Spain

Source:Atradius

Insolvencygrowthforecasts2020 ,%y-o-y

Page 13: Credit Today Perspectives #4 · Increasing customer requests for extended payment terms Increasing insolvency and payment default risks leading to bad debt provisioning Supply chain

Page 14: Credit Today Perspectives #4 · Increasing customer requests for extended payment terms Increasing insolvency and payment default risks leading to bad debt provisioning Supply chain

Withbaddebtlosseslikelytorise(maybesubstantiallyforsomefirms),whatportfoliomonitoringand

collectionbestpracticesshouldyoubefollowing?

Page 15: Credit Today Perspectives #4 · Increasing customer requests for extended payment terms Increasing insolvency and payment default risks leading to bad debt provisioning Supply chain

Poll#2:Whichofthefollowingdoyouexpecttobeyourgreatestchallenge

throughtheendoftheyear?Balancingthecreditandcollectionsworkload

15%

Handlingtheincreaseincustomer

delinquencies32%

Minimizingbaddebtlosses

22%

Workingwithsalestoremain

profitable31%

85Responses

Page 16: Credit Today Perspectives #4 · Increasing customer requests for extended payment terms Increasing insolvency and payment default risks leading to bad debt provisioning Supply chain

PastDues&BadDebt:FinancialStatementImplications

The Trends

■  Increasing customer requests for extended payment terms

■  Increasing insolvency and payment default risks leading to bad debt provisioning

■  Supply chain complications and product availability concerns

Best Practices to Protect Your Balance Sheet & Cash Flows

■ Call or video conference your customers! Understand the current impact of Covid-19 on their business operations, their liquidity, and their customer base.

■ Gain an understanding of your customer’s payment trends during the current environment. Is the customer slow paying multiple suppliers or just you?

■ Tighten your credit controls in the current environment. Regularly review your aging and quickly contact customers falling outside of normal payment behaviors.

■  Identify financially at risk customers and increase the frequency of your credit reviews. Adjust credit limits and risk appetite

accordingly. Be aware of the potential for preferential claims in the event of a bankruptcy.

Page 17: Credit Today Perspectives #4 · Increasing customer requests for extended payment terms Increasing insolvency and payment default risks leading to bad debt provisioning Supply chain

NOWMORETHANEVER,IT’SCRITICALTOUNDERSTANDCORPORATELINKAGE •  Businessesintheimpacted

regionshavelinkagethroughouttheworld

•  Closeto180Kbusinessesinimpactedregionsarebranchesorsubsidiariesofcompaniesheadquarteredelsewhere.

•  ThecountrieswithhighestfamilytiestotheimpactedregionsnotablyincludeFrance,Malaysia,Canada,NorwayandMexico–whatisthistryingtosay?

Global Headquarters Distribution of Businesses in Impacted Region: Top Countries and Regions

COMMERCIAL IN CONFIDENCE

ITALY37%

BRAZIL21%

USA11%

SPAIN10%

INDIA7%RUSSIAN

FEDERATION3%

ENGLAND3%

FRANCE3%

CANADA2%

BELGIUM2%

TURKEY1%

Other1%

Page 18: Credit Today Perspectives #4 · Increasing customer requests for extended payment terms Increasing insolvency and payment default risks leading to bad debt provisioning Supply chain

Develop a risk-based assessment process for both onboarding and

ongoing monitoring

Monitor your full portfolio of

customers and majority ownership

relationships

Monitor your full portfolio of

suppliers and your customers’ Tier 1

suppliers

Prioritize Collection Strategies

THESETIMESWARRANTAFULLREASSESSMENTOFPOLICIES&PROCESSES

COMMERCIAL IN CONFIDENCE

Page 19: Credit Today Perspectives #4 · Increasing customer requests for extended payment terms Increasing insolvency and payment default risks leading to bad debt provisioning Supply chain

Review your credit approval processes to include evaluation of risk sectors: geography, line of business (SIC/NAICS) and predictive indicators

•  Failure •  Delinquency •  Voluntary Cessation

Prescreen new business prospects

Identify parental ownership and material relationship to cross reference levels of risk

Re-evaluate your risk thresholds

BESTPRACTICESCRISISPLAYBOOK

COMMERCIAL IN CONFIDENCE

Develop diverse collection strategies: •  High Touch vs. Low Touch •  Prioritize by risk segments (geography,

industry, risk indicators, size and age) •  Consider alternative payment options

(i.e. credit card, partial payments, payment plans)

Monitor your supply base to determine your potential supply chain interruption

Monitor your key customers’ critical suppliers

Review credit limits related to risk segments and aggregated exposure

Page 20: Credit Today Perspectives #4 · Increasing customer requests for extended payment terms Increasing insolvency and payment default risks leading to bad debt provisioning Supply chain

Questionsweareunabletoanswerduringthewebinarwillbeansweredoff-lineanddistributedtoallattendees,aswillcopiesofthisslidedeck.

Weappreciateyourattendingthisevent.CreditTodayplanstocontinuethesediscussionswithotherleadingcreditindustryexperts.ThenextPerspectiveswebinaristentativelysetforJune29th.

FormoreinformationaboutCreditTodaypleasegotocredittoday.net.YouwillfindseveralarticlesaboutdealingwithCovid-19inourpubliclistingsaswellaslinkstoourearlierwebinarsinAprilandMay.

Questions?Ifyouwishtocontactanybodyonourpanel,youmaydosoviaemail:

•  ChristopherRios–  [email protected]

•  DavidCulotta–  [email protected]

•  DanHowarth–  [email protected]

•  DaveSchmidt–  [email protected]

Page 21: Credit Today Perspectives #4 · Increasing customer requests for extended payment terms Increasing insolvency and payment default risks leading to bad debt provisioning Supply chain

Biographies

Christopherbringsover20yearsoffinancial

operationsexperiencetotheFinanceSolutions

teamatDun&Bradstreet.Hehasexperienceacrossvariousindustries

includingmanufacturing,services,andsecurity

withafocusonorganizational

developmentandresourcing;strategic

planningandtechnologymanagementtobuildaglobalsharedservicesmodelforfinance

operations.

Inhisrole,DavidisresponsibleforprovidingstrategicdirectionfortheU.S.underwritingplatformandformonitoringthe

developmentoftheU.S.portfolioandadaptingtheriskmanagementapproachasnecessary.DavidearnedhisMBAat

LoyolaUniversityMarylandandisaCFA

charterholder.

DanhasbeenwithBilltrustsinceJanuary2019whereheworks

withclientsonsolutionstoimprovetheirorder-

to-cashprocessspecificallyfocusingoncreditandcollections.PriortoBilltrust,DanworkedatalargethirdpartylogisticscompanyasapractitionerinCredit,Collections,

Billing&Payment,andPricingfor9years.DanreceivedhisMBAfrom

XavierUniversity.

DavehasbeenacontributingeditorwithCreditTodayforabout15years.HestartedhiscareerwithD&Bandthenmanagedcredit

departmentsforseveralmid-marketfirms.In1994DavefoundedA2Resources,aconsultancywithafocusonCredit,

CollectionsandReceivablesautomation.

He’stheauthorof“PowerCollecting:

AutomationforEffectiveAssetManagement”(J.Wiley&Sons,1998)