Businesses in Ireland are gradually re-opening as national measures to contain the coronavirus crisis are eased. However, the economic implications of the restrictions are only beginning to be fully realised. According to the International Monetary Fund, the global economy is predicted to contract sharply by -3% in 2020 alone. This represents a more severe contraction than during the 2008/09 financial crisis. Closer to home, figures released by the Central Statistics Office (CSO) in June show that the Ireland’s unemployment rate, if including those in receipt of Covid-19 payments, was 26.1% in May. In addition, employer’s group IBEC warned that many thousands of businesses are likely to go bankrupt within the next six months unless there is a “dramatic intervention” on the part of the State.
Against this backdrop, many business owners will have very legitimate concerns about collecting monies they are owed and supplying goods and services on credit in the weeks and months ahead. We set out below some guidance for creditors facing the challenge of re-opening and trading.
Avail of State supports
Perhaps the most crucial action that any business can take is to ensure that it is availing of all government supports to which it is entitled. The obvious supports that come to mind are the Temporary Wage Subsidy Scheme and the Pandemic Unemployment Payment. However, there are also a range of other grant aid packages, loans - which in some cases will be guaranteed by the State, vouchers and training funds for businesses that have been impacted by the crisis. These are outlined in some detail on the website of the Department of Business, Enterprise and Innovation www.dbei.ie
It is worth remembering that the business closures of the past few months were Government ordered measures taken in the interest of public health. Businesses were forced to close through no fault of their own and can justifiably expect assistance from the State, as they seek to re-open. In that context, many Irish businesses will be hoping that the newly-formed Government’s much heralded 'July stimulus' package becomes reality.
More prudent businesses will have remained in constant communication with their customer base during the lockdown period, in both their own interests and in those of their customers. Most will have kept records of these communications. They will have been gathering information as to the impact that the crisis has had on their customers and whether they were thriving, surviving, or struggling. This information will be crucial in the weeks and months ahead in the making of new credit decisions involving the supply of goods and services. In light of the unprecedented situation, the traditional criteria for credit-checking and credit-scoring, based on historical financial information such as end of year accounts, no longer applies.
Businesses will instead have to seek and obtain up to date financial information of new and existing customers. This will include up-to-the-minute management accounts, forecasts, business continuity plans, bank details showing receipts and payments. It is particularly important to seek these from sections of a business’ customer base that it might not have sought for similar information from in the past. We have frequently found that settlements/acceptable phased payment arrangements might even be forthcoming where certain customers are not willing to provide these. Even the refusal to provide this additional level of financial information tells a business something about that customer!
Ask for payment
It may seem obvious, but as they leave the lockdown business creditors must follow a basic tenet of credit management. You must now be prepared to simply ask for payment from your customers, even though these customers will also have been in lockdown for the past number of months. A business should not make the assumption that a customer cannot pay it. Its starting point in these requests should be “payment in full, today”. If it is the case that the customer cannot, as opposed to will not, do this, then it may be possible to agree smaller payments, longer phased payment deals, write-downs, etc. A customer seeking such revised terms, however, must be willing to make disclosure on its financial position. Nonetheless, the business creditor should only work its way down, slowly, from the starting point, of full payment, today!
Shorten your escalation points
Simply refusing to extend credit further though, is not going to see your business survive and thrive in the weeks ahead. Businesses will have to take risk, but it should be prudently calculated risk. If you have not already done so, it is wise to now review your business’ credit policy and risk strategy in light of the current changed circumstances. The information gathering work you have done in liaising with your customer base will dovetail well with this. If you have followed your own credit terms, supplied the goods or services, your invoices are not in dispute, and you have even exercised forbearance during the Covid lockdown, then there is no reason you should not be paid. In the absence of payment and/or meaningful engagement, then unless you are willing to write off the debt, then there are three principal escalation options open to you. These are:
Escalating the debt to a third party debt collection agency
Going to mediation – particularly if the contract provides for that and you are certain that your customer can pay you, but is choosing not to, or
Suing the debtor for payment
The increased risk of business failure means that in order to mitigate that risk, it is absolutely incumbent on you to shorten the time within which you decide to escalate action on the unpaid debt, and bring in a third party. This will help maximise a business’ chances of getting paid what it is owed.
Even as businesses reopen, the uncertainty and the unprecedented implications of COVID-19 require them to change the way they act in order to try to ensure survival. We strongly recommend utilising any available government supports, close liaison with your industry and customer base and the faster escalation to third parties when your own efforts do not yield payment.
We are assisting our clients to get paid by way of contract and portfolio reviews and advising around commercial leverage, which may well result in faster payment, in certain sectors. However, if escalation to litigation is required, contact a member of our Debt Recovery team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.