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COPYRIGHT 2001 National Association of Credit Management
It has been a decade since the credit management profession has had to deal with a recession, but in comparison to its predecessors, the recession of 1991 was quite mild. Unless you were around in 1982 when things were really in a slump, chances are you have not experienced truly tough times. "A lot of the credit people I deal with are relatively new to the profession and haven't previously had to work through a problem economy. During the course of a year they may have had two or three accounts in their receivables portfolio that were having problems, but now they are facing upwards of a half dozen problems at once. It's a new experience for this latest generation of credit professionals," observes Scott Blakeley of the law firm of Blakeley & Blakeley, LLP in Irvine, California.
It should come as no surprise that recent economic uncertainties have served to reilluminate all the risks inherent in extending trade credit. During the long string of sunny days emanating from our once booming economy, there were few dark recesses where risks could lurk. After all, everybody was making money. But now the shadows have grown longer, and the risks loom larger than many credit professionals can remember. All of a sudden, cash has become tight, and that shift, even if it were only psychologically based, is bound to have a profound effect on commercial credit and collections in the months ahead.
Reading the Tea Leaves
What makes the credit manager's job even more difficult, is that our current economy is very hard to read, much less predict. At the time this article is being written (mid March), the economic indicators are mixed. Even though the American Bankers Association pegs the chance of a recession in 2001 at only 34 percent, nobody is disputing that growth is now minimal. "Though I see the overall economy slowing down," notes D. K. Malhotra, associate professor of finance at Philadelphia University, Philadelphia, PA, "the whole economy is so large nowadays that you cannot expect the whole structure to come down in one day. It begins with just one sector, but given the integrated nature of the economy, slowdowns will move from one sector to another. Some sectors, like technology, have been hit quicker than some others, but in the end,...
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