Franklin Capital’s Sue Duckett has seen a lot in her 25-plus-year career in the commercial finance industry. Her career has spanned several positions and two countries, but she has never seen anything such as the current crisis. It has been overwhelming at times, with constant changes and an unprecedented number of new inquiries relating to personal protection equipment (PPE). She pushed aside the mounting emails in her new home office to reflect on what she has seen over these past several weeks and where she thinks this might be going.

How have things changed for your business during this pandemic?

Wow! Where do I begin? We have seen numerous aspects of our business change during this pandemic, from purchase orders being canceled or delayed to expecting debt to age out, along with clients experiencing less revenue. Email communication has increased with debtors and clients as many of us are working from home. This creates inefficiencies.

Credit is being pulled every second by insurance companies.  The retail industry was already in a tough place. Now, however, without the cash to see clients through the closures, I expect to see many heading toward bankruptcy.

Credit worthiness has always used historical trading to make decisions, but this is no longer the case as historical numbers are worthless in this climate.  Despite making smart credit decisions when you purchase an invoice, the debtor may now be a concern when they are in the affected industries.  How do you assess credit when a business is not operational?  I have no doubt that all factoring companies are experiencing this.

The shutdown means some businesses have nowhere to sell their products or services or are not considered an essential business and have to shut down.  We have a client who supplies food to the airlines. Since flights have been drastically reduced, so has their revenue.  Thankfully, they are not concentrated in this one industry, but it still has an effect on their business.

Despite this difficult time, we have industries that are doing extremely well. For example, food suppliers to local stores are seeing a boom, especially with baked goods.  We thought toilet paper was tough to find; now you cannot find bread, flour, or yeast.

Computer games have seen a large rise in demand. In addition, office supply sales have risen as more people work from home. Ecommerce has also seen a huge rise in online shopping services.

How have you been dealing with debtors who want to push payment terms?

Many retailers have closed or advised us that payments will now be held back until later dates or even indefinitely. The first one came through the day after the first stay-at-home order was announced, and many requests have followed since then. We have talked with our clients (some are critical suppliers) and have managed to get the customer to revert to the original terms. In some cases, it will be just a matter of waiting. The invoices have been funded, but the debtor is not able to pay.  This is certainly not a time to take legal action. If necessary, we have credit insurance to fall back on.

Have your credit limits changed? How? Why?

Credit limits are being reduced or removed daily and are dependent on the industry, concentration, and dollar amount. The credit insurers are seeing an increased number of claims. In order to fund at a higher level now, they will want a higher premium if they decide to cover at all.

We are impacted by our customers’ relationships with their clients and what and who  they supply. Some of our clients have very good relationships with their customers so they expedite payment.

We have kept a very high level of communication with our clients. Any changes in credit or information received from their customers are immediately passed on to our clients to keep them involved and up to speed with action being taken.  It is not easy to tell clients their credit is being reduced, but they understand that we are trying to protect them--not just ourselves.

Have you continued to fund clients who have debtors pushing payments and changing their terms?

Yes, where we can. We are treating each account differently. Where we are comfortable in our risk assessment that the customer is likely to continue trading after the shutdown, we are providing facilities. Thankfully, our clients are dealing with many stores that are still open, including food and hardware stores. But for those that are not, we are trying to assist where possible and look at flexible ways to fund their business.

Debtors that we cannot contact have caused bigger problems, but payment plans and details on how and when the customer can pay have helped us to continue funding them.  Without that, there is a greater chance we will not be able to.

What issues are you seeing with PPE and medical equipment providers?

It would seem that everyone now has orders for millions of dollars to supply PPE.  I would say 99.5% of deals that we are seeing for PPE are not from PPE industry companies, but are from businesses that have worked with importing goods, no matter the industry. They are now looking to supply PPE to states, hospitals, and large businesses. 

It is crazy, but the usual payment terms with these customers have now changed dramatically.  We are now seeing these customers pay large deposits up front, make payments into escrow accounts, make payments once the goods leave China, and accept up to 15-day credit terms. Chinese suppliers are requiring funds up front, usually with the order--not necessarily upon shipment. So there is no surprise that we are being inundated with PPE purchase order funding requests.

Many businesses looking to supply PPE have set up new corporations, keeping these separate from their usual course of business.  They have very little financial backing and yet request large sums of funding, a lack of experience in the PPE industry, if any at all, working with new suppliers with no experience of the product and no knowledge of their FDA certifications.  USA and China customs are constantly seizing fake FDA-certified equipment, so this is a major concern.

What is the most troubling thing you are seeing through this pandemic? What keeps you up at night?

In the beginning, it was the element of surprise. Once we had contacted all our clients, there was some comfort. But many small businesses are not going to make it through the crisis. Retail is being hit hard and not knowing when it will reopen is very troubling.

What really keeps me up at night is trying to find new ways to fund our clients. I’m always looking for that manageable way to take a different form of collateral.

Life and the economy will be different going forward and not knowing what that looks like is a concern.

Reflecting on what you have seen so far, how do you think things will look when this is all over?

Everyone is talking about what the new normal will look like. We are getting used to working from home, entertaining ourselves at home, and almost exclusively shopping online.

E-commerce has been pushed to another level, and it is only going to increase. Suppliers have an unexpected surplus of inventory that will need to be sold off once this is all over because they have not been able to sell it while stores are closed. Unfortunately, many of them won't make it through this. Where are these companies going to sell their inventory surplus if the mom and pop stores do not reopen? They are going to need to turn to the Internet if these shops are no longer in business.

What is the biggest lesson you have learned so far from this?

1.  Assume nothing!

2.  Communicate with your clients and their customers at a very high level. Understand where their needs are and where you can help to make sure expectations are set.

3. There are some things you cannot prepare for.