Managing Financial Risk During COVID
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A financial services adviser urged trucking companies to learn as much as possible about new and existing customers’ ability to pay their bills, as navigating the post-pandemic economy will bring with it new challenges.
“You should proceed with an abundance of caution in 2021,” said Dan Grenemyer, national account manager at Altus Receivables Management, during a May 5 session at the Intermodal Association of North America’s 2021 Virtual Intermodal Operations, Safety & Maintenance Business Meeting. “We don’t know what the future will hold as far as future stimulus.”
Grenemyer said companies “may not be ready to prop themselves up” financially amid a period of tenuous recovery, and noted that while many staved off bankruptcy last year, the year ahead may still be fraught with risk of it for businesses.
Grenemyer said bankruptcies actually declined in 2020, which he attributed to government stimulus funding aimed at staving off the impact of the pandemic on businesses. He noted that about $5 trillion was pumped into the economy through grants, funding, tax deferrals and loan guarantees last year.
For 2021, Grenemyer suggested that transportation companies look carefully at the industries potential new customers are in to determine the level of risk in working with them — especially industries that struggled during the pandemic. If there is concern, he suggested requesting a promissory note that includes a personal guarantee from new customers. When it comes to existing customers, he suggested creating a portfolio analysis.
“We recommend a strategy that prioritizes campaigns by risk,” Grenemyer said. “If you have a new customer that you don’t know, pull a credit report on them. I know that’s not a popular topic and most people don’t like to do it, [but] there’s a ton of good reporting agencies out there that you can pull credit reports from.”
Grenemyer added that potential customers should be reviewed for payment trends prior to the pandemic. He noted most credit reports should go back 18 months, so there should be information from before the pandemic. “If they were struggling before COVID and are struggling now, then there’s a bigger issue,” Grenemyer said.
When it comes to collections, including accounts that are past due, Grenemyer said tone is key.
“We recommend using a caring approach that conveys a message of concern for how they could have been affected, while at the same time giving them a strong reminder that the balance is due,” he said. “If you look at the payment trends during the onset of the pandemic, it can give you an indication of their reserve, or their cash reserve health. For example, if a company had a ton of money and was doing really well at the onset of COVID, then they fared better and you probably won’t see a decline in their payment trends.”
Should a customer fall behind on payments, Grenemyer recommended making contact and including information on how long they’ve been delinquent followed by the balance. He noted it’s better to be proactive than to react to something like a bankruptcy notice.
“We believe a call at the right time can make a big difference,” Grenemyer said. “It’s really important to set follow-up dates so that you’re a priority to be paid. If they don’t have money now, find out when it’s coming in and make sure you follow up when you say you’re going to.”
He cautioned, however, that if your company is reaching out but not getting a response, it could be a sign of a larger problem. He noted, for example, that demand letters might state that a customer has 10 days to respond.
“Companies are waiting longer to place accounts for collection or take legal action,” Grenemyer said. “We believe that’s because they want to be more sensitive to customer issues or customer cash flow. But just be aware as time goes on, you can significantly lose the chances that an account is going to pay. That’s because companies go out of business. They allocate funds that could have been used to pay you to other things or other creditors.”
Grenemyer also urged carriers to check customers’ records for liens, judgments and Uniform Commercial Code filings. He noted that if a company had any of those issues before the pandemic, that could mean they have been in trouble for a while.
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