94% of CFOs change risk strategy


"If businesses can't grow and trade on a global scale, that only exacerbates the slowdown we’re seeing in the world economy," James Daly, president and CEO of Euler Hermes Americas said. "In just a few months, we've seen business leaders restrict credit terms and slash expansion plans. This is why it's so important to consider risk mitigation strategies, like trade credit insurance, that allow for growth even in times of crisis."

Many companies are building disaster scenarios, and trying to determine what the "post-COVID" landscape will look like for their workers and for their bottom line. Daly says CFOs are newly considering the types of experts and departments their companies employ, and whether they will be equally necessary in a permanently remote workforce.

"We've seen a number of CFOs take pretty drastic action," Daly told CFO Dive in an interview. "They're furloughing workers, and laying some workers off. Capital investment has gone to back of the queue."

Daly says CFOs he spoke to have their eyes trained on forward-looking priorities. "They're trying to understand, 'what does my business need to look like after this crisis?' 'Will we need the same amount of real estate?' 'Do we have the infrastructure that allows for working from home? If not, how do I invest in that?' 'Do I need the workforce I currently have, or do I need to reinvent?'" Daly said. "I don't think there are any simple answers to these questions; they'll widely vary from organization to organization."
As customers default on payments at an unprecedented rate, per Euler Hermes' research, many CFOs are considering restricting credit term extensions permanently, as a way of safeguarding company cash. As to whether this is the right call, Daly says there isn't an easy answer.

"Right now, we’re seeing our business ensure the nonpayment of insolvency, and we're seeing CFOs be very cautionary," he said. "Basically, your analysis of credit worthiness is very different from what it would've been pre-COVID. This huge shutdown led to an 80% loss of business, for some folks. So, their creditworthiness analysis has, obviously, has taken a big dip."
As a result, Daly says, CFOs' ability to forecast credit limits in the future has become more challenging.
"The usual data points CFOs rely on, like credit management, credit reports, and so on, will not reflect what’s happened over the last three to four months," he said. "So, the ability to extend credit terms will be challenged, and certain sectors will trade on longer terms."

Daly predicts payment term changes to occur for small- and midsize-businesses all across the country, regardless of field or income.

"These changes will happen across many industries, because state and local governments are asking people to help organizations, and not go after debt collection or debt outstanding," he said. "What would normally be collected on a 60- or 90-day basis is being pushed out to the end of the year, because there’s still no clarity on when things will return to normal."
At the current moment, when many people are struggling to pay, the best thing for companies to do is avoid losing their supply terms, Daly said, encouraging collaboration with the customer. "Push that out, and be gentle, and allow those payment terms to be extended until the end of the year."

Daly points out that many CFOs have a gap in their financial analysis when it comes to customer and customer behavior, particularly at such an unpredictable time as now.

"The ability to extend credit to customers gives you collective advantage, and it's vital in these times," he said.
Daly also urges CFOs to consider what data they're using to guide decision-making, now that most reliable facts and figures have been completely upturned. If you're losing sight of your customers, try gathering as many insights as you can from the experts in your space, he said.


[ Source of cover photo: Adobe / Brian Jackson ]
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