2020 thrust us all into the jaws of change. At the beginning of this year, economists and pundits tried to decipher what bearing this would have on the outlook for 2021. We summarised the points relevant to our clients – the credit managers, credit controllers, CFOs, Heads of AR and Finance Directors in a white paper. The key takeaway is that credit management, and in particular, those responsible for receivables and collections, will play a far more prominent and critical role in most businesses this year and for the foreseeable future. At least until the economy has recovered robustly, and supply chains are flowing unimpeded once again without the spectre of credit crises, companies folding and increasing amounts of debt.
You may be in an industry that has thrived during enforced periods of remote working. Or one that has been under immense pressure – healthcare, for example. Regardless of where you are, you have inevitably faced pronounced changes.
Here is a summary of the key risks to watch out for – if these don’t apply, then count yourself among the most fortunate in your profession.
If you are affected, visit this blog and our Linked In page for tips on how these risks could be mitigated.
Risks for Credit Managers in 2021
- Increased DBT Issues: Likely due to failed contact details, challenges reaching your normal AP contacts due to remote working and changes of physical address, email address or work patterns. Many AP managers have juggled homeschooling and other responsibilities, meaning their working day has shifted, even if their email address has been the same. Many have been furloughed with unreliable alternates supplied. These have often been group email addresses with no corresponding contact telephone number. At Data Interconnect, we call this uncertainty of delivery issues and failover planning shortfalls.
- Higher and rising DSO: However you calculate or measure it – rolling averages or periodic averages, you are likely to see DSO creeping up due to the foregoing and simply an inability to pay.
- Increased Credit Risk: due diligence for new creditors will have been based on pre-COVID history. You need to take the temperature of the creditor today to gauge their risk effectively. You could likely benefit from revising credit risk for each and every creditor – or at least under broad categories, based on the impacts of recent events on the clients’ businesses.
- Higher Aged Debt: Yes – almost every metric in your field will be changing. Aged Debt is rising as a consequence of issues with contacting creditors plus the sheer challenges many businesses face with juggling cash for payables against cash for wages. Hard decisions are being faced. Be sympathetic but fair!
- Written Off Debt: One thing leads to another. As companies go under, there will be a risk that aged debt in the less favourable categories rises beyond your normal tolerance levels as you hold out hope of eventual settlement of debts. Some companies are choosing to be pessimistic in their forecasts but hold off on ledger entries.
- Staff Shortages: Not just due to illness, compassionate leave, responsibilities for care and homeschooling or enforced isolation via ‘track and trace’ but due to cutbacks in your own workforce. Sadly, if this has not happened already, be prepared to see management wrestle with these decisions. At Data Interconnect, we’ve seen much interest from businesses looking to reduce OpEx by creating efficiencies that mean their staff can be more productive or fewer staff can cope with higher volumes effectively. Talk to us about building a business case for redeployment. We’ve seen many companies thrive by enabling their previously overburdened credit managers come up with brilliant solutions using the data from Corrivo that was not available before implementation. They’ve justified their own salaries by their recommendations.
To share your views on how to mitigate these risks in the comments below.