Every day there seems to be another revelation regarding the global economy. Although the Covid pandemic seems to have come under a reasonable level of control in the US and Europe, China has continued to implement severe anti-virus spread restrictions in some of its major cities. 

As part of its strategy, factories, warehouses, and deliveries have either been shut or slowed down, causing huge world-wide supply chain delays. In addition to this supply chain set back, Russia’s war in Ukraine now risks creating a double punch to the world’s economy that is also grappling with high inflation. 

Assuming however that China can finally get control over the spread of the virus and resume its manufacturing and shipping schedules, the wide-ranging effects of the supply chain disruptions will continue to ripple through the global economy for months on out. 

Because of these supply chain disruptions, many large US manufacturers have already begun to shift their manufacturing process to Mexico and Latin America, creating shorter supply chains and logistical processes. Relocating current supply chains might cost more in the short term, but the long-term benefit of keeping raw or finished goods coming into the assembly line and out the door to customers on time is paramount. 

So where do the supply chain disruptions leave us credit risk management professionals? 

For starters, if our market is domestic and we are not receiving the product from overseas, that means we are not shipping to our domestic customers. Whether we are shipping goods in progress or finished goods, we cannot invoice what we cannot ship. Therefore, when there’s no shipping, there’s no billing, and thus no cash flow. 

But even if the product is slow getting in the door, this is the time to really step up and work those receivables and convert them to cash as quickly as possible. 

  • Look carefully at your best customers and think about temporarily offering a 1-2% (or possibly more) discount on the invoice total for early payment.
  • For any customers who are even slightly passed due, bypass the statements and give them a call to see when payment will be forthcoming. Here too, don’t be hesitant about giving a temporary discount if they will wire the balance to your account within a few days.
  • For any disputes against the product that has impeded the ability to get paid, rope in all the necessary people related to the dispute to get it resolved and paid. In some cases where necessary and possible, don’t be bashful about picking up the check or arranging for it to be delivered.
  • Some companies that sell to the big box store retailers need to provide 90 day and more in payments terms. Look into accounts receivable financing which can often advance your company up 80% of the invoice value, and even at times on a non-recourse basis. 
  • If there are any past due accounts that you have been holding but should have been placed for third party collection, submit them to your collection provider asap. 

Now, there are probably a few good customers that can use existing inventory in stock but perhaps because the established credit limit is not high enough, more products have not been offered. 

In working with sales, wherever you can, safely try to increase credit limits by:

  • Reviewing sales and payment history.
  • Obtaining additional third-party credit and financial information.
  • Requesting a personal guarantee if this will fit the situation. 

In other words, by offering a higher credit limit to existing good customers, this might just encourage them to buy more of your products in stock, should they need it. 

So, in short, even if the goods or product may be slow getting in the door, there are still numerous ways for credit professionals to contribute to the stability and cash flow of the organization. 

Your questions and comments are most welcome (nseiverd@cmiweb.com).

All Rights Reserved

Nancy Seiverd, President, CMI Credit Mediators, Inc.

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