- While struggling to overcome coronavirus-related challenges, 57% of companies plan to increase reserves, 45% plan to tighten credit terms and 31% are reviewing risk mitigation products to manage cash flow, according to a survey by Euler Hermes, a provider of trade credit insurance.
As the COVID-19 crisis unfolds, CFOs are most concerned, in the short term, about workplace safety, followed by supply chain disruption and the uncertain outlook for fiscal stimulus and regulation, according to the survey of 250 CFOs or their direct reports at 250 small- and medium-size companies in North America.
- COVID-19 has compelled half of the surveyed companies to reduce staff and cut other expenses, while 41% faced major disruptions in cash flow and 32% made big shifts to their business models.
Businesses can anticipate a rebound in demand this year, according to the Congressional Budget Office (CBO).
The CBO forecasts the U.S. gross domestic product (GDP) will probably recover to its pre-pandemic level by the middle of 2021, spurred in part by federal aid to businesses and households, and annual GDP growth will probably average 2.6% from 2021 through 2025.
The $900 billion recovery legislation approved by Congress in December will probably boost GDP by 1.5% in 2021 and 2022, according to CBO. Congress is now considering a proposal from President Biden for additional aid, totaling $1.9 trillion.
"If vaccine administration increases sharply, COVID-19 comes under control and consumer confidence returns, it could unleash a flood of pent-up demand," Dan North, chief economist for Euler Hermes North America, said. "But if those conditions are not met, the positive outlook is very much at risk."
Sixty-one percent of survey respondents said the pandemic has pushed up nonpayment rates, with 27% reporting at least a 50% surge in nonpayments.
"Among the impacts of COVID-19, we are seeing increases in days sales outstanding and unpaid invoices," James Daly, CEO of Euler Hermes Americas, said in the report. "Many companies previously utilized their accounts receivable as a form of collateral for financing — a strategy that’s becoming more challenging as the crisis evolves."