Customers are stretching payments further – why it’s not likely to change anytime soon

2023 promises to be a very challenging year for Accounts Receivable departments. The word from many in the A/R and credit & collections arena is that customers are stretching payments as far as possible, and past-dues are surging.

Inflation and interest rate hikes are impacting debtors’ cash flow. One other factor: The COVID gravy train’s gone dry. Two industry sectors in particular are now struggling mightily to pay creditors in full and on time – hospitals and universities.

“More customers are asking for longer payment terms and to float cash a bit longer,” says Brad Hamman, director of credit at Sodexo, who spoke to the “Extra Credit” podcast sponsored by the National Association of Credit Management. “[Hospitals and universities] were big recipients of government funding during COVID.”

With that funding now gone, many companies are struggling to get their budgets under control. Hamman notes in addition to COVID funding going away, inflation and interest rate hikes are “putting a pinch” on customers’ ability to pay.

No risk, no reward?

Extra Credit highlighted the challenge some credit professionals are facing with upper management. There are times when the CFO may not agree with a credit move or may need more convincing to go out on a limb. And in dicey economic times like now, the potential for friction between credit or A/R and execs is higher.

Frank communication is critical and difficult conversations are sometimes essential. “The more time you spend with the business leaders, and the more conversations you have, helps to build equity,” says Craig Pluff, credit manager at Graco Inc.

Building that equity is critical for those times of disagreement. “Even if it’s a risky credit decision, as a company we say we’re going to take a risk,” says Pluff. “If it comes back to bite us, that doesn’t fall on the credit team.”

More frequent conversations or brief meetings can help all levels of finance keep tabs on customer trends and potential cash flow hurdles. Not all decisions will work out, but the chances of success are always higher when the lines of communication are wide open and there’s a bedrock of trust in place.