2021 challenges signal that some countries and companies will face difficulties navigating the post pandemic environment. Listed below are our ten tips to take a proactive stance to protect your financials in a global recession..
1. Assume every market will be affected. Naturally, certain emerging markets carry a higher degree of risk versus others. However, even large markets such as the USA and the United Kingdom have been burned through the bankruptcies of A & P and Woolworth’s. Total risk should be measured by the amount of credit outstanding as well as each countries risk factor.
2. CFO to CFO discussions make sense.Bring in the financial experts. Let your company CFO or financial manager speak with your Distributors ( or Key Retailers) financial manager. These financial experts speak the same language and will allow your financial team to accurately gauge the situation. It also spreads out the responsibility beyond the sales and marketing department for potential problems.
3. Request New Distributor/Retailer Credit Information– Most of this information was submitted years ago in advance of the credit crisis. It is timely to request new, up to date, information, particularly since many companies will filing their 2020 Year End reports soon.
4. Watch Distributor/Retailer Inventories– Shipments to retailers may not correlate to consumer demand. Inventory levels measured in terms of weeks supply on hand should be monitored at both distributors and retailers. Higher inventory levels signal slowing consumer demand. Reduced inventory levels may indicate a cash flow/potential credit problem.
5. Track Leading Indicators– Most of us are not economists, but it is still easy to develop a straight forward tracking form of leading metrics/trends for distributors in key countries. Shipments, Days Outstanding, Accounts Receivable, Country Level GDP, Unemployment, and Currency Exchange Rates
6. Connect with Peer Non-Compete Suppliers– Every retailer and distributor trades with a myriad of suppliers. I recommend setting up formal or informal groups of peer, non compete, suppliers . These supplier groups can serve as a valuable forum to share trends and insights about common distributors and retailers.
7. Payment Terms– Some suppliers are implementing additional safeguards to protect themselves. This includes moving towards “brokerage style” arrangements where the manufacturer still maintains ownership of the goods. Other strategies include offering discounts for early payment or requesting Cash on Delivery.
8. Run a Dun & Bradstreet Report on Partners– On the surface, business may appear normal. A Dun & Bradstreet Report creates a rating based upon a thorough examination of financial records, statements and dealings of the business with its customers, clients, investors and shareholders.
9. Beware of Unusual Shipments or Billback’s– Unfortunately, there are too few examples of unusual, “best ever” success stories. Look carefully at order patterns or promotional allowance reimbursement ( billback) requests that appear out of sequence or abnormal.
10. Commit to Open Dialogue with Long Term Partners– Many exporters enjoy relationships with their international distributors that extend 20, 30, 40 years or more. Current financial issues likely reflect overall country level financial status versus poor decisions taken by a long term distributor. Distributors need to understand that manufacturers hate “surprises”. Best bet is to create an environment that facilitates open communication supported by data to solve any credit issues.