March 23, 2023


Banking Crisis Tightens the Credit Market

Jamilex Gotay, editorial associate

These past few weeks, the U.S. has experienced severe deja-vu after the fall of Silicon Valley Bank (SVB) on March 10, the biggest bank failure since the 2008 financial crisis. Then news came of Venture Capital firms advising startups they had invested in to pull money out of SVB for “fear of an imminent bank run,” reads an article by The Economic Times. In doing so, lenders have lessened business prospects and tightened the credit market.

According to a recent Moody’s report, the U.S. banking system went from stable to negative due to “the rapid deterioration in the operating environment following deposit runs at SVB, Silvergate Bank and Signature Bank (SNY) and the failures of SVB and SNY.” These bank runs were supposedly due to interest rate risk and liquidity risk.

Smaller companies are the first to be affected by these bank failures. “Credit is going to tighten and because the regional banks provide 85-90% of loans to small businesses, that’s going to hurt smaller companies,” said Ron Shepherd, CICP, director of membership and business development at FCIB. “Even though the consumer may be financially healthy, the banking crisis, continued higher rates and tighter lending standards by the banks, increases the risk of a hard economic landing.”

As credit tightens, companies are going to have a harder time borrowing capital for their businesses. Large-volume customers who receive their financing largely through Venture Capital are going to be struggling. “We will all be dealing with it whether our customers work directly with these banks or not,” said Esther Hale, ICCE, senior analyst and treasury-global credit at Phillips 66 Company (Bartlesville, OK). “Lines of credit may well be reduced or eliminated as bank borrowings by the financier become constricted. The only thing I’m watching are some of my customers who are funded by Venture Capital companies because I can’t really know their exposure to Silicon Valley Bank.”

Investors and savers are worried that there’s insufficient Federal Deposit Insurance Corporation (FDIC) insurance coverage for these deposits. “But what many people may not realize is just how common it is for a large portion of a bank's deposits not to be covered by insurance,” reads a report by MarketWatch. The U.S. Department of the Treasury, Federal Reserve and FDIC announced that depositor's withholdings above the $250,000 FDIC insurance threshold would be made whole, per Wells Fargo. The Federal Reserve also announced a new lending program to help assure banks would be able to meet all the needs of their depositors.

Switzerland has been experiencing their own banking crisis with the collapse of large bank, Credit Suisse (CS). CS had been fighting a crisis of confidence for months, before “its demise was sealed in just a matter of days last week when Swiss authorities brokered a takeover of the bank by larger rival UBS,” reads a Reuters article. The Swiss bank merger cost CS more than $3 billion.

The deal between the twin pillars of Swiss finance is the first megamerger of systemically important global banks since the 2008 financial crisis when institutions across the banking landscape were carved up and matched with rivals, often at the behest of regulators. The Swiss government said it would provide more than $9 billion to backstop some losses that UBS may incur by taking over CS. The Swiss National Bank also provided more than $100 billion of liquidity to UBS to help facilitate the deal.

The merger between UBS and CS means that there is now one trade finance bank less, said Fred Dons, director, head CTF flow Netherlands at Deutsche Bank (Amsterdam, NL). “Due to the cost of financing for banks and trade finance going up, the appetite for new clients will be limited for the bigger corporates. Additionally, there is a call for banks holding more capital, which is likely to fade because more capital means less appetite for business.”

Because of uncertainty, consumers and businesses are going to be more conservative and that increases the risk of a recession. “There’s a huge psychological factor at play right now in the markets,” said Shepherd. “The spillover from the banking crisis is going to impact the way banks put a template over what they are doing in terms of extending credit and they’re going to pull back. There is also the possibility that we could experience stagflation.”

However, some are not as concerned that this will cause a repeat of the ’08 crisis and will have a limited impact on trade creditors. “I don’t see any particular impact at this stage on trade creditors,” said Scott Morrison, business development director at Willis Towers Watson (London, UK). “A contraction of banking appetites and facilities might impact a company’s ability to offer longer terms of payment as they would be looking to collect cash from customers more promptly, but don’t think we are anywhere near that stage currently.”

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Can the Credit Profession Be Remote?

Kendall Payton, editorial associate

Hybrid and remote work schedules became widely used at the start of pandemic as companies adapted to social distancing. Three years later, many credit teams remain on a hybrid schedule while some have returned to a traditional in-office model. In a recent eNews poll, nearly half (47%) of credit professionals said every person on their team works remotely at least part of the time, whereas roughly one in three (30%) of professionals said a quarter or less of their team works remotely. 

The pandemic forced the world to adjust to this new way of working, but it poses a big question: Can the job of a credit professional be done effectively at home? The short answer is yes, but success will greatly depend on your company culture, industry and automation.

Automation plays a key role in the ability of credit departments to work remotely. B2B trade is heavily reliant on paper and manual processes, but credit teams that have embraced technology have been more successful in remote environments. “Our team has been 100% remote other than coming into the office quarterly just to have a lunch or meet with each other on a need-to basis,” said Penny Jeter, CBF, NACM Board director and director of credit at Ingram Industries (Nashville, TN). “I was working on making our department paperless right before the pandemic hit, so that’s why we’ve been able to be successful in continuing to be remote.”

Some departments took the pandemic as an opportunity to become more comfortable with technology. “The automation and saving files to a cloud eliminated the hallway lined with filing cabinets full of files and records,” said Wendy Mode, CCE, CICP, division credit manager at Delta Steel, Inc. (Cedar Hill, TX). “It also kind of forced some credit managers to learn a new way of doing their job because they didn’t have a printer or scanner at home. They learned to save to PDF and upload files from that.”

But the time to train your team on new technology is before you switch to a hybrid schedule, not after. “Fast internet speeds along with access to phone calls and checking voicemails are two big resources needed in order to mitigate delays or down time in productivity,” said Mode. “Before hybrid work became popular, your colleagues could easily walk down the hall to ask a question, get approval on an order and more—but if you are working remotely, then they are at the mercy of an email or phone call.”

Having the ability to work a hybrid schedule means less expenses for employees such as fuel, time commuting and vehicle maintenance. “It saved at least roughly two hours of time spent in of daily traffic for our company,” said Chris Hadley, credit and collections manager at KLX Energy Services LLC (Houston, TX). “Sometimes I actually find myself working way too much because it’s hard to find the times to turn things off. When we work with accounts payable or A/R teams it can be difficult working remotely, so we’ll go in if we have big meetings but typically try to stay at home.”

However, even after three years of remote work, some aspects of in-person cannot be replaced. A survey from TinyPulse in 2021 revealed many workers found hybrid schedules “emotionally exhausting,” according to an article from HR Dive. And for companies who previously were paper intensive rather than tech savvy, the shift to automation is not easy. “At Delta Steel, we’re de-centralized and in the office majority of the time,” said Mode. “We have the flexibility to work from home if a need arises, but overall feel we can best serve our internal customers being in the office.”

Connectivity and communication between team members is less effective when being at home, Mode added. It is just not as easy to identify who is busy or available to assist with a project. And on the day everyone comes in the office, you lose some productivity because people are catching up.”

When hiring new employees, remote training and onboarding processes can be a hassle. Some employees learn better in face-to-face environments than others. “I believe this is one of the largest pitfalls of working remote,” said Mode. “In one of our locations, our sales manager has a policy for new hires in which they must work a minimum of six months in the office full-time. At the end of the six months, they will discuss and review to see the progress and ability to work from home two days a week.” 

The most important consideration to take in is the impact of different work settings on the productivity and quality of work. We all know being at home can be distracting when your place of relaxation is the same space for where you should be focused. But some could argue that there are more distractions in the office with colleagues. “Quality of work for us has remained the same specifically with credit and collections,” said Hadley. “All of my teams work from home and for the most part there is no need for us to be in a physical office. However, it takes a certain type of person to have discipline in order to so, but luckily for our team it works well.”

If you are unsure of how your credit team will perform on a hybrid work schedule, closely track efficiency with metrics. Check to make sure collection calls are still being made and accounts staying current. You can use metrics to award the amount of time team members can work from home.  

You also may be interested in our upcoming webinar on Using Hybrid Work to Improve Retention and Productivity While Cutting Costs on April 19.


4 Reasons You’re Not Getting a Promotion

Joel Garfinkle, executive coach

One of the most common reasons my clients have sought me out for coaching is that they’ve just made an unsuccessful attempt at getting a promotion at work. It can be a crushing experience, to hear that they still have work to do in convincing others they are ready for more responsibility. If you’ve ever had someone tell you they’d “love to promote you, but …” check out some of my behavior-changing strategies, below. 

1. Knowledgeable but indecisive

Progressing through our careers, we build up a huge body of knowledge in our field of expertise. When we start to hit that critical mass of skill and comfort, we often feel ready for the next step. But in addition to having the knowledge, you also need the confidence to take that information and transfer it into making decisions. If you’ve received feedback that you need to be more decisive, think about those situations where a decision was required that needed your area of expertise. Were you able to make a choice? Did you freeze? Just not speak up? Defer to someone else? The ability to take your experience and apply it in a critical moment is key to increased responsibility in almost every organization.

Action step: Think about how you can build your decision-making muscles. If you’re afraid of overstepping your bounds, plan to have some real conversations with your boss about the reach of your authority, and their expectations on your role in making choices. Clarity can help you focus your scope.

Start seizing every opportunity to practice thinking through the choice you would make in a given situation and the input you’d need to devise an action plan. You can keep it to yourself at first, mapping out in your head how you’d get to a solution. You’ll need to start voicing your thoughts, after a bit of internal practice. Start making suggestions and engage in the weighing of options. Work on strong, confident wording like “if X is true, then I would Y.” Be bold, even if you’re not quite ready to be the final voice on something.

Speaking up and participating in the decision-making process will be key to getting a promotion at work. If your organization doesn’t seem like a safe place to disagree or make mistakes, consider working with an executive coach to determine how much of that is just your personal perception and how much is a sign you need to move on to another position where you can grow.

2. Personable but lacking authority

If likeability is one of your strong suits, you may be friends or friendly with nearly everyone on the team, including those above and below you. If you’ve been told that your demeanor lacks authority, it might be time to consider how your easy-going attitude has skewed people’s perceptions of your ability to lead. Are you seen as purely fun, not the one to “get the job done”? Are your superiors concerned you would hesitate to give direction to those you pal around with? It might be time to start demonstrating how you can take charge in any situation.

Action step: Brainstorm some areas of your work that could use leadership. If you can define and volunteer to improve a process, reorganize a scattered situation or lead a mini-project to boost morale, you’ll be demonstrating that you can manage authority and that you have the ability to identify areas that need focus. Mini-initiatives are ideal for showing your talent, but only the first step. Be sure to put your name forward for further items of increasing responsibility, to highlight both your desire and ability to lead.

3. Productive but unapproachable

If you’re someone who is very focused or “head down” when it comes to accomplishing tasks, it can be easy to earn a reputation as someone who is stand-offish or unavailable to others seeking advice. I’ve had some great clients who were highly competent and extremely productive workers, but who tended to work solo and ignore all other distractions. When you do this, you can miss out on great opportunities to participate in conversations and ad-hoc thinking sessions, offer help and advice or congratulate and console others in their triumphs and struggles. You lose out on making personal connections. When you’re not a part of the team dynamic, you can be seen as being unapproachable. Higher-ups will hesitate to offer leadership opportunities where people need to come to you.

Action step: Determine how to use your work ethic to change your stand-offish perception. If you’re a workhorse who methodically knocks off task after task, put important opportunities for interaction on your to-do list. Schedule in time to ask others about how their work is going. Share your progress — your successes, setbacks and solutions. Listen and join in when discussions and brainstorming spark up. Offer to check in and mentor newer team members who need to validate their ideas with a more senior resource. Consider these chats as important as the actual tasks themselves, because being someone people can (and want to!) turn to is critical to leadership. 

4. Detail oriented but struggle with fast-paced situations

I’ve had more than one client who built their career and reputation on being steadfastly detail-oriented; the one who could always be counted on to make sure every bit of an issue was properly examined and accounted for. If you’re known for being able to spot the issue with even the smallest minutiae, you might have also been told you lose credibility in stressful and quickly-evolving situations.  When you’re used to methodically working at a micro level, it can be hard to step back and look at the bigger picture. 

Action step: Consider how you can start practicing decision-making when you don’t have every single detail. As tempting as it is to dive in and get all the information before making a choice, that isn’t always practical in a leadership role. You may be used to understanding every bit of information, but ask yourself whether you really needed it all to make a decision. How small a detail could really change your direction? How irreversible is the choice? Can you gain advantage by deciding quickly? Remember that part of getting that promotion is the ability to be efficiently decisive. People want to be led by someone able to make a timely choice based on their knowledge, experience and business instinct, all of which you have. Trust and leverage it.

Do you see yourself in any of these BUT situations? Are there other ways you need to change others’ perception of you and demonstrate your executive presence? Even when you’ve received disappointing feedback, there are opportunities to turn that information around and use it to really shine. While it can be humbling to hear you have work to do, knowing what qualities you need to demonstrate can also give you a sense of purpose and put you back on track to building the next step in your career. 

Executive coach Joel Garfinkle provides executive coaching to help companies build a pipeline of leaders who can excel at the management level, and he is the author of 11 books, including “Executive Presence: Step Into Your Power, Convey Confidence, & Lead With Conviction.” Subscribe to his Fulfillment at Work Newsletter or view his video library of more than 200 easily actionable, inspirational, two-minute video clips by subscribing to his YouTube channel.

This article originally appeared on SmartBrief.

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How Well Do You Know Your Customer?

Kendall Payton, editorial associate

The global economy has been battered by the Russia-Ukraine war, supply chain challenges, climate change and increased fraud. In response, more regulations have been put in place when it comes to global trade. Credit professionals must dive deeper than ever before during Know Your Customer (KYC) investigations.

“Requirements have always existed in global trade but the attention to these issues and enforcement have only increased,” said Doreen Edelman, Esq., partner at Lowenstein Sandler LLP. “The government feels there is no excuse that credit managers can’t do their homework on customers. Everything must be transparent.”

When considering an extension of credit to a new customer, researching the right information is an important step to complete. A few key questions to think about before extending credit to a new customer are:

  1. How likely will this customer be involved in situations that can expose the company to risk?
  2. What previous businesses have they worked with?
  3. Is this customer’s location included in any sanctions listed by the government?
  4. How does the economic climate play a role in this customer’s risk profile?

It also is important for credit professionals to remember due diligence and KYC processes are not exclusive to new customers only. These questions should be considered with current customers because external factors can change at any given moment, potentially increasing their risk profile. “For example, for many borrowers, the interest rate increases have been the most alarming,” said Dev Strischek, principal of Devon Risk Advisory Group, LLC. “Although some customers are able to raise prices, it’s not enough to cover the cost of borrowing plus material supplies and cost of labor. Banks have been cautioned in being more careful when granting credit. When you add to that, certain industries have been adversely affected than others.”

Political unrest has increased around the world in recent years, creating a domino effect of sanctions. The Russia-Ukraine war, for example, led most western countries to impose strict sanctions on Russia, which altered many global trade relationships. “The biggest challenge I’ve seen recently has been because of impact from the war,” said Tim Bastian, ICCE, senior director of risk at Western Oilfields Supply Company (Bakersfield, CA). “Sanction lists are growing often and it can be hard to stay compliant when they are quickly changing.”

Not only is it crucial to know who you are selling to, but you also need to question who the end-user of the product is. This of course depends on the type of product you are selling and the region/country you are selling into. According to an eNews poll, 73% of credit professionals check for sanctioned or denied parties using credit checks, 45% use third-party subscription-based resources and 18% use online government resources.

A relatively low number of U.S. companies do business directly with Russia, whether that be importing or exporting. “When we think of U.S. exposure, these two markets are relatively small in terms of our exports,” said Economist Shannon Seery, in a Wells Fargo video, Economic Insights: Some Implications of the Russia-Ukraine Conflict. “About $2 billion of our exports go to Ukraine and about $6 billion go to Russia, which is fairly small in terms of our $24 trillion economy.”

However, if you dig deeper into your customer’s supply chain, you may find that you have been indirectly selling into Russia or to a company owned by a sanctioned Russian oligarch. The same goes for products your company imports. Sanctions data included in public lists should be checked regularly and are updated often in order to support your compliance processes.

Regulators in the U.S. and abroad have grown more demanding in their requirements for banks to become more stringent in checking trade flows in regulatory areas such as trade-based money laundering, know your customer (KYC) rules, trade sanctions and dual-use goods prohibitions. Because of heightened risk factors, it is more expensive and takes much longer for banks to complete their own due diligence and approve Letters of Credit (LCs). Some banks may even be in a position to turn away business if due diligence becomes too time consuming. As a result, trade creditors have access to a shrinking network of correspondent banks.

Credit professionals must know where their payment is coming from. “Foreign banks should have a robust banking system when doing business with a corresponding bank,” said Bastian. “A lot of it has to do with the hard currency available and some countries’ economies were already weakened because of COVID. It really depends on your appetite for risk and your profits involved.”

During the early stages of the pandemic, high rates of fraud in the PPP loan program caused banks to tighten their policies, said Strischek. Though fraud and bribery laws vary by country, creditors should always stick to the most conservative rule—legality should always be the number one priority.

Supply chain transparency is another increasingly common requirement. For example, the EU Supply Chain Act proposes that the largest 1% of companies are responsible for ensuring that their entire supply network falls into compliance. It aims to “carefully manage social and environmental impacts throughout their supply chain, including their own business operations, and it goes far beyond existing legislation at national level,” per EQS Group. This law takes a closer look at minimum age requirements, worker safety, pollution and biodiversity loss in the supply chain.

“The worry of supply chain issues increases typically if the primary source is international,” said Strischek. “Customers can have more than one source of goods and materials, but the supply chain kinks have cut down on the number of alternative courses. The customer now must consider what happens if there is only one source and its difficulty in getting goods to sell to the customer.”

Failure to comply with the law could lead to fines of up to €8m ($8.6m) or 2% of the global sales. German management fear this “puts their firms at a disadvantage in that it “creates more red tape in a country that already has tangles of it, and could harm not help workers in emerging markets,” reads an article from The Economist.

In order to protect your company from violations, every department and every level employee must be well-versed in due diligence. “Senior management needs to understand so they can address concerns early on,” Edelman said. “Training needs to trickle all the way down to administrative workers and all arms of the company. KYC practices must become second nature so employees are always thinking from this perspective.”