Manage customer risks now and after Covid-19

Covid-19 lockdown impact on small businesses

Incoming cash falls 50% at small business-to-business companies

Most of the small business alarms during the coronavirus lockdowns have been ringing for consumer businesses, with good reason since restaurants and retailers across the country are shuttered. Now we’re beginning to see the ramifications in the business-to-business vendors that support them and others.

Last week, small business-to-business companies saw sales fall to 73% of the average over the previous six months, and suffered cash collections falling to a life-threatening 50% of the average over the same period.

This drop in collections of accounts receivable is the result of lower sales combined with companies trying to conserve cash by delaying payments to their vendors. Days Beyond Terms (DBT) is a popular metric used by accountants to track how overdue late invoices are, and DBT hit 94 days in March, which is 24% higher than the average over the prior six months.

Covid-19 Lockdown Impact on Small Businesses

The 27% drop in sales and 50% drop in collections is after just 15 days of lockdown in March. Small B2B companies tend to have more cash reserves than restaurants, but most have fewer than 60 days worth. If both sales and collections continue falling in April, many of those small B2B companies will start running out of cash.

B2B companies tend to process more invoices and accounts receivable collections during the last week of the month than in other weeks. Tally Street compared the last week, starting with March 29th, to the last weeks of the prior six months across the US and Canada. The results for last week may improve as backdated entries are made, but cash collections started trending down at the start of March and are expected to continue falling.

Triaging small business customers

Now is obviously the time for small businesses to conserve cash, but it’s also time to evaluate which customers to aggressively support and where to minimize risks.

Accountants and CFOs can help by preparing a master customer sheet. These spreadsheets list each account, how long they’ve been a customer, recent sales trends, lifetime value, credit limits, past payment performance, and more.

Business managers and sales teams can use a combination of their customer sheet and their specific market and customer knowledge to flag each account as high, medium or low risk. High risk customers include those who might not survive: businesses should tighten collections and credit limits for them. Low risk customers present great opportunities: businesses might ease payments or extend more credit to build long-term loyalty and success.

Tally Street Customer Review Example