Why Even Large, Longtime Customers Still Need Credit Risk Analysis

You may not own or operate a large publicly held company (or privately held company) with a lot of corporate debt, but chances are one or more of those companies may be your customers — or your customer’s customers. With an all-time record of $2 trillion in corporate debt coming due between now and 2021, early indications are that the market’s capacity to absorb upcoming maturities is already below average, according to Moody’s. Refinancing of this corporate debt will come at a steeper cost as Federal Reserve interest rate hikes start to bite.

What happens when a large customer’s millions (or billions) in debt financing comes due and they have to refinance at a higher interest rate? Do you have access to predictive analysis that signals a change in a company’s creditworthiness as they struggle to pay back the debt? How will your company be affected if a few large customers start paying late or are forced into bankruptcy? Do you want to be left flat- footed?

The following is a cautionary tale about what happens when your largest, and seemingly best, customers have a surprising change in their financial health.

An $800 million engineering services company had customers throughout North America, Europe, Latin America, Australia, and Asia. The company had a decentralized billing and receivables management function. When a few, large customers declared bankruptcy, the company was caught off guard because the potential risk had not been properly vetted. Management of these large, past due accounts were ineffective and the company was not prepared to oversee the customers’ drawn-out and complex bankruptcy process.

It was discovered that the engineering company had 5,000 global customer risks that required monitoring for quarterly or semi-annual renewal. Unsecured credit lines ranged between $10,000 and $20 million. Several accounts were considered uncollectible or severely past due. In addition, the company needed to set up workout programs to process claims against its bankrupt customers, negotiate preference payment demands and prepare settlement agreements.

What’s the end of the story? The company learned a valuable lesson about proactive receivables management, which freed up cash for future acquisitions and overall growth. An additional $1.5 million in cash flow was collected through installment notes, 85 percent of which were paid without third-party intervention.

How did they do it? Get the details in our new whitepaper, “Corporate Debt is Maturing and Cost of Old Debt is Rising: Are You Ready?” We’ll share the steps that world-class organizations are taking to get proactive with credit analysis and accounts receivables management — even with their best and largest customers.

Download your free whitepaper today.