COVID-19 Pandemic Slashes March’s CMI

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The Credit Managers’ Index from the National Association of Credit Management took a big hit in March due to the coronavirus pandemic reaching the U.S. on a drastic scale.

It’s still unclear just how long normal business will be disrupted, and as weeks turn into months, credit managers will continue to make critical decisions for their companies.

The latest Credit Mangers’ Index (CMI) saw some of the biggest drops since the Great Recession of 2008. Due to the effects of COVID-19, almost every reading in March fell below a reading of 50, placing the combined score into contraction. NACM Economist Chris Kuehl, Ph. D., said credit managers will be the “crucial players” during this economic environment, making the tough decisions and negotiating more than usual with their customers. It’s still unclear just how long normal business will be disrupted, and as weeks turn into months, credit managers will continue to make critical decisions for their companies. Relationships will be more important than ever, Kuehl noted.

The combined CMI score entered contraction territory for the first time in several years, coming in at exactly 49. February’s index read at just above 56, showcasing a 7-point drop from last month to this month. More record-setting drops will likely continue as the fallout from the coronavirus continues. For each category, the favorables saw the most immediate impact while the unfavorables still held steady—although that likely will not continue for long.

“The full impact of the business shutdown has not been felt,” Kuehl said, “although it will likely start to manifest in the weeks to come and in the next iteration of the CMI.”

Sales saw the most dramatic drop in the favorables, reading at 39.5 in March after a 64 in February. New credit applications and dollar collections also fell into contraction territory, each falling about 10 points or more. Amount of credit extended was the only reading that stayed above 50 in expansion, which went from 63.6 to just over 53.

The unfavorables, conversely, carried the CMI and have not felt the effects of COVID-19 just yet. Rejections of credit applications only fell less than a point down to 53.5, and disputes even improved by two points to 52.1. Bankruptcies only saw a one-point drop. Kuehl noted many of the unfavorable categories will likely take longer to react to the pandemic, and time will tell in upcoming indices.

“The interruptions in business activity have developed in just the last two to three weeks; this is showing up in immediate data such as sales and credit applications,” Kuehl said. “...The accounts placed for collection remained very close to where it had been before as there has not yet been time for many customers to get in trouble.”

The manufacturing sector began to feel the rumble in the economy before the service sector. Since factories across the globe shut down in order to exercise social distancing, the manufacturing sector began to see declines sooner and on a more gradual scale than the service sector. Manufacturing fell about six points to just under 50, while service fell about eight points to roughly 48.

“The credit manager will have to decide what the likely fate of their customers might be,” Kuehl said. “If they are doomed, the only course is to get as much of what is owed as possible. If they think the situation will improve soon, they will be inclined to wait it out and keep the relationship intact.”

For a complete breakdown of the manufacturing and service sector data and graphics, view the March 2020 report at http://web.nacm.org/CMI/PDF/CMIcurrent.pdf. CMI archives may also be viewed on NACM’s website at http://www.nacm.org/cmi/cmi-archive.

ABOUT THE NATIONAL ASSOCIATION OF CREDIT MANAGEMENT
NACM, headquartered in Columbia, Maryland, supports approximately 11,000 business credit and financial professionals worldwide with premier industry services, tools and information. NACM and its network of affiliated associations are the leading resource for credit and financial management information, education, products and services designed to improve the management of business credit and accounts receivable. NACM’s collective voice has influenced federal legislative policy results concerning commercial business and trade credit to our nation’s policy makers for more than 100 years and continues to play an active part in legislative issues pertaining to business credit and corporate bankruptcy. NACM's annual Credit Congress & Exposition conference is the largest gathering of credit professionals in the world.

Contact: Michael Miller
Andrew Michaels
Christie Citranglo
410-740-5560

Website: http://www.nacm.org

Source: National Association of Credit Management

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