By: Thomas Deas on April 29th, 2020

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Business Considerations For Logistics Companies During An Economic Downturn

Agency Ownership | Business Advice | Logistics | Transportation | Best Practices

Recently we’ve all witnessed what a crisis or an unforeseen disaster can do to our economy and businesses. Larger companies tend to have the cash and infrastructure in place to weather the storm. A quick and unprecedented downturn in the economy, as we have seen with COVID-19, can destroy small businesses.   

New customer set-up and credit analysis occurs daily at Armstrong. The corporate office monitors and approves credit on over 5000 customers annually. Monitoring creditworthiness and staying on top of collections is imperative to our success as a logistics company. We lean on resources like Euler Hermes, Ansonia, and Dun and Bradstreet to stay up to date on the market.

Here are a few ways to keep your logistics business healthy during an economic downturn. 

Financial Reporting and Monthly Forecasting 

Make sure to have forecasts and projections for your organization at least three months in advance. Consider creating multiple models showing different scenarios. If cash flow issues arise, get ahead of it by being proactive in conversations with your customers, carriers and lenders.

Continue to monitor the government assistance programs available for small businesses and take advantage of them immediately, even if you are unsure if you need assistance right now. All of the above is imperative to the growth of your business and helps you to have control of your business when there is a change in the economy.  

Tighten Receivables 

Collections efforts are more important than ever. From the Deloitte Report: Managing Cash Flow During a Period of Crisis, “Companies tend to get lax about receivables when the economy is booming, interest rates are relatively low, and cash flow is not a concern. Focus on customer-specific payment performance and identify companies that may be changing their payment practices. Also, get the basics right, such as timely and accurate invoicing. Any errors in your billing process can lead to costly delays in receiving payment.”

Most logistics companies provide a soft collections approach with a focus on customer service. That shouldn't necessarily change in a downturn. The collections team must maintain regular open communication with customers.

Here are some key behaviors that may signal issues to be aware of: 

  • The customer stops answering or returning calls and emails.
  • Repeated requests for invoices and paperwork that have already been sent.
  • The date of payment keeps getting pushed out.
  • Payments that are promised/scheduled do not arrive on time. 

Make payment as easy as possible for your customers. Encourage electronic payments via ACH and wire transfer to eliminate USPS delays. Customers may ask for an extension of their payment terms or even to be placed on a payment plan. Keep communications open and hold them to honor the new terms or the payment plan. If these commitments start slipping, be ready to make decisive action when the time comes to turn an account over for collections. 

Closely Monitor Credit

Constantly monitor and evaluate the creditworthiness of your customers. Especially those with the largest lines of credit or in vulnerable industries.

For instance, airlines are currently in the midst of the biggest slowdown in modern history. Even greater than after 9/11. Their credit is being reduced globally. Reduce any excess credit, especially during an economic downturn. 

For organizations like Armstrong that rely on credit insurance, our provider is seeing the following trends: 

  • New coverage in the airline and hospitality industries will likely not be available for the foreseeable future.
  • Existing coverages in the Automobile, Transport, Metals, Textile, ITT, Oil & Gas, Retail and Construction sectors are under review by all insurers. We anticipate an exercise in coverage reductions on less creditworthy risks in the very near future. 
  • Insurance carriers are bracing for a spike in insolvencies around the world, along with past dues that will trigger policy reporting covenants. 

Be Prudent But Aggressive With Sales

Sales are the engine for any organization, and it is important to keep opportunities coming in even during a slowdown. Be respectful of the current COVID-19 crisis in your timing and your approach.

Consider new ways to stand out in the crowd, like video or embedded thumbnails in your email to catch your prospect’s attention. Another dry email about COVID-19 preparedness may go directly into the junk folder. 

If your organization can financially support additional payroll, now may be the right time to add salespeople. There is a lot of great talent available in the market right now. Hundreds of logistics professionals have been released from their current roles. These individuals are willing and motivated when looking for their next position, which could be a long-term benefit for your organization.

Communication Is Key

Stay in constant contact with your customers and check in to see how they are doing during the economic downturn. This shows them that you care and keeps you up-to-date on the good and bad happening in their business. 

Encourage salespeople to reach out to customers on a regular basis. When freight is stagnant, keeping in touch with customers is more important than ever. This can also be an ideal time to touch base with past clients or prospects that were never converted to customers. Have a real and genuine reason to reach out to them and the conversation will go well. Ideally, they will remember you and your organization in better times. 

Focus On Needs

During an economic downturn, push the pause button on the things you want and concentrate on what the business needs. Start by making modest changes that that will keep your organization fiscally healthy:

  • Cancel all non-essential travel and conferences for the next 6 months (this is pretty easy to sell when everyone is required to stay at home). 
  • Cancel or suspend sports tickets, concert tickets and other employee and customer entertainment.
  • Consider the suspension of bonus or commission payments to staff.

Preparation is the key when longevity is the plan.

Your Business Can Survive

The world is in the midst of the most unprecedented downturn in recent memory, but there’s still time to protect your business. Being proactive in managing finances and relationships is more important now than ever before. To learn more about Armstrong and how we can help you, visit us at www.armstrongtransport.com