It’s been 16 years since the last major economic downturn – the banking crisis that started in 2007 and was in full impact mode from 2008 through 2010. During that period, the U.S. economy shed over 8.7 million jobs, and the unemployment rate peaked at 10% in October 2009. Since then, we’ve weathered the COVID-19 pandemic, which many experts predicted would lead to a wave of defaults and business closures. Instead, we witnessed an avalanche of liquidity hit the market, largely driven by government intervention and stimulus measures.
Since the pandemic, we have seen a rapid increase in interest rates to combat inflation. As debt continues to mature over the next 18-24 months, companies will be looking at refinancing at twice the rate or more adding to interest expenses. As we look down the path of the next 12-18 months, we see two vexing situations that could significantly impact your company’s profitability if you’re not prepared. First, since we haven’t seen significant default activity in recent years, many companies have let up on their credit risk management efforts, as the value proposition wasn’t as compelling as it was during previous economic downturns. It’s been noted in a survey that nearly 40% of companies reported reducing their credit department staff during the pandemic. Compounding this issue is the accelerated retirement of many credit veterans who have experienced various economic cycles and downturns. The Bureau of Labor Statistics reports that the median age of credit analysts and risk management professionals is 47, with a significant portion nearing retirement age. As a result, directors, controllers and CFOs must answer these critical questions:
- Does my Credit/Accounts Receivable team possess the necessary skills to manage an increase in default accounts effectively?
- Am I adequately staffed to handle an increase in risk and market volatility?
- Does my team have the expertise and experience to keep us ahead of potential default situations?
- Is my team proactively monitoring the Accounts Receivable portfolio for early warning signs?
Based on the answers to these questions, you may want to consider sending your key employees for training on identifying, assessing, and managing potential default customers. The Credit Research Foundation (CRF) offers an array of courses designed to help your staff get up to date and ready for the next wave of default activity (CLICK HERE for the full list of on-line courses). According to CRF’s data, companies that invest in credit risk management training and resources experience lower bad debt write-offs and improvements in Days Sales Outstanding (DSO) during economic downturns. Failure to prepare could leave your company vulnerable to significant financial losses and cash flow disruptions. Don’t let the next economic downturn catch you off guard. Invest in your credit team’s skills and expertise today to safeguard your company’s profitability and resilience in the face of economic uncertainty. Become a CRF Member today!