Due to the high inflation, we are experiencing coupled with the risk of a recession and rising defaults, we thought it was a good time to gauge the business credit community's expectations going into the 4th quarter of 2022. In total, 19 credit executives shared with us their companies' outlook for Q4, the direction of their DSO, and what they are doing, if anything, to bring their credit and collection policies in line with expectations.
The survey revealed that most expect business to continue apace with minimal concerns about any substantial hit to DSO. However, there does seem to be a concern that credit quality may deteriorate, and to compensate, many organizations are collecting more aggressively. Here are the complete results:
Observation: A very large majority, 90 percent, expect business to be stable or grow.
Observation: The outlook for DSO appears to skew slightly to the negative side in contrast to the generally optimistic business outlook noted above. One can imply from this that there are some concerns that the credit quality of Q4 sales may deteriorate.
Observation: Even more firms are stepping up their collection efforts than those expecting DSO to deteriorate. This provides further support for the implication that there are concerns about credit quality in Q4 but also indicates that many organizations expect their collection policies will be sufficient to keep DSO from deteriorating.
Observation: While a majority indicated they were ramping up collections, a very large majority are not making any changes to their credit policies. Of those changing credit policies, the bias was 4 to 1 to tighten rather than loosen credit.
Question: What steps are you taking to tighten credit?
- Limiting exposure on existing credit terms. Requesting more deposits on large orders to cover expenses. Being more cautious with extending new terms.
- Requiring more verification and reports during the credit application process.
- Enforcing the collection of project information to secure lien/bond rights.
- Utilizing collection strategies and tightening collection steps.
- Enforce credit holds on accounts that are past due.
- Not accepting any additional lateness. Credit Hold until satisfied. Additional Prepays & COD on limited supply.
- Pushing back and placing customers on hold sooner when the account is past due.
Observation: The common thread in these replies is stricter credit hold tactics.
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