by Evelyne Legaux on 15-03-2022
So, here we are again!
Back in spring 2020 when the pandemic first hit, content about how to navigate a never seen before-type crisis was flourishing across social-media platforms. Two years on and just as the world was finally getting back to some kind of normality, an unprecedented war in Europe broke out causing a catastrophic humanitarian crisis, indescribable destruction & threatening the world with the dark prospect of WWIII.
The timing of which obviously owes nothing to chance…
The purpose of this article is to help Credit & Order to Cash (O2C) professionals navigate a business situation that is both very complex & near unpredictable.
How does the conflict in Ukraine impact businesses?
Like with any crisis, the first thing to do is to consider the big picture & understand how businesses are being impacted.
No matter the industry, such impact takes multiple forms & varies:
. from inability to access hard currencies & make payments to supply chain disruptions,
. from reputational risk of trading to mental health of employees & third-parties,
. from breaking existing commercial agreements to heightened cyber risk,
. or else, from the effect of sanctions to prompt withdrawal of cover by insurance underwriters.
The successive waves of Sanctions alone, taken by the US, the EU, the UK & a growing number of other countries alike, affect international trade and the economy in many different ways: soaring energy prices, disrupted supply in hard hit sectors (food, automotive, chemicals, etc…) causing increased inflation, several Russian banks disconnected from SWIFT, etc…
Not only do those sanctions cripple Russia & Belarus, but they also tend to backfire through counter-sanctions such as the Russian bans on asset transfers & commodity exports, by putting energy security at risk for some European countries & severely hitting Ukraine-EU trade.
Identify cash Collections risks
This time round again, businesses should act swiftly and demonstrate pragmatism & flexibility in dealing with customers.
If you have customers located in Ukraine, Russia or Belarus, do ensure that you:
Talk to as many of them as possible to understand their own circumstances re access to finance, warehousing & logistics capabilities, ability to continue trading, etc…
Explore possible alternatives with them: can they access funds in a country that is not directly affected by the war to pay you? If they are a reseller, can indirect customers pay you instead? Can you take goods back whether under Retention of Title or otherwise, or else move them to safety?
In the present situation though, you may have no option but to grant payment delays to customers, or even accept a payment freeze for an undetermined period of time…
Do not overlook the rest of your customer portfolio as customers located in other countries may also be significantly affected by the Ukraine crisis, albeit indirectly.
The more you talk to & know your strategic &/or margin-generating customers, the better prepared you are to navigate this new crisis.
Whatever challenges you are facing, talk to your customers as opposed to writing to them. Ask how they are doing? Show that you genuinely care about them and understand their needs & feelings.
Although your purpose is to find the best way to get paid, by showing empathy you create an opportunity to build a long-lasting emotional connection with them, and inspire all-important loyalty & trust.
If your customers survive the crisis, the connections you created will outlive the business impact & your company’s reputation in the market place will benefit from it!
Evaluate your present Net Exposure
The next steps are to:
. talk to your Sales & Operations teams, 3PL provider(s), Credit intelligence provider & any other actors with valuable knowledge of the situation on the ground in those high-risk geographical areas, to further your holistic risk assessment,
. talk to your Credit underwriter(s) if you are insured, to share with them the non-payment risks that you are exposed to, understand what part of your exposure is actually covered vs not covered, and get their buy-in on any customer terms extensions if applicable,
. be clear as to what financial guarantees or collaterals are in your possession, and check both their validity & enforceability.
Equipped with the above, you can then revisit your bad debt Reserve approach to make it more flexible and inclusive of both specifically known risks & general volatile risk alike.
This is undoubtedly the most sensitive question…
If your customers in the high-risk geography are no longer able or willing to trade, then business interruption is the way to go with minimum damage to the relationship.
What if your customers are still able & willing to trade however? This is likely to involve a very difficult decision-making process where ethical & humanitarian considerations directly clash with rational business & financial reasoning.
Another key area to look into is whether you have a Force Majeure clause included in your general Terms & Conditions of trade (T&Cs) &/or commercial agreements with customers or not. If you do, best is to work with your internal or external lawyers to ascertain if the concept of Force Majeure can be successfully invoked here by you as the vendor in the jurisdiction where the contract is governed, or else by your customers?
From a Credit or O2C perspective though, the best thing you can do is to work very closely with your Sales & Operations organization to:
. bring your own views into the decision-making process,
. and support them in growing profitable sales with creditworthy customers in other market segments &/or geographies with a view to offsetting any expected losses in the high-risk areas.
As for the rest of the customer base located outside the high-risk geography, Credit & O2C professionals should consider implementing a customer portfolio segmentation process for analytical review, risk class assessment and action.
Segmentation can be by geography, business stream, channel or whichever else is meaningful to the business.
The purpose of such exercise is to obtain a “big picture” view of your portfolio risk profile.
Furthermore, it helps position yourself, as a Credit or O2C professional, in a pivotal role by taking an active part in the driving of revenue & profitability towards safe trading, thus creating value for your business, at the most difficult & heart breaking of times for us all.
We are all in this together! If you need help, do reach out on email@example.com or through our Contact page.