Unlike past crises, the current COVID-19 crisis has arrived with little warning and has left many organisations desperately playing catch-up in response to fast changing events.
Businesses who were planning their next phases of growth are now challenged to respond to urgent requests for re-structures and payment holidays with front-line sales teams being rapidly re-deployed to address these priorities.
Beyond the immediate impact of trying to help customers with their short-term cash-flow management, we at Invigors suspect this is probably just the first wave of business impacts.
As the wider world struggles to assess the potential length of the downturn in activity and impacts, we in the asset finance community are also seeking to assess the right response and to put the best plans in place for what we see today and can realistically imagine in the coming months.
Whilst we all hope the support of governments around the world will minimize the levels of bankruptcies and minimize the length of the current economic downturn, there is clearly already a major impact on economic activity and output.
We already see production facilities in many industries forced into temporary closure and for some businesses it seems inevitable this crisis will precipitate a level of business failure. As a minimum, the reduction in output will suppress economic demand and consequently the need for equipment. We already see business failures from SMEs to major companies such as One Web, and more will inevitably follow.
Whilst the nature of this crisis is different to that of the past banking crisis, we believe some of the lessons from 2008/2009 are relevant to the situation facing the industry now.
For most lessors, we would recommend attention be paid in the following areas:
In-Bound Customer Request Management
- What rules, which staff, what authorities, do we differentiate by customer type, asset types, outstanding exposures per client, vendor relationships, etc.?
Do we have the right processes and experience in place along with the right information to manage effectively day to day?
Proactive Portfolio Monitoring and Management
- Credit quality and delinquency, credit support, vendor and service partner exposure.
- Residual position and/or any dealer or OEM support. Specific understanding of existing remarketing channels and any new constraints and risks.
- Proactive offers to ensure equipment remains in situ and clients survive.
Again, are the right processes in place along with the management information and analytics to understand the real exposure and make informed proactive choices?
Asset Management and Remarketing Strategy & Operational Execution
- Strategies to keep assets earning with lessees
- Redeployment strategies
- Remarketing channel selection, development and management
Do we have the right level of competence and experience to minimise potential losses and do we have the right strategy and processes in place?
Reduction in Liquidity
- How to minimise impact on existing customers?
- When to turn taps off to new customers / vendor relationships?
- Which vendor relationships to prioritize?
- Differentiating versus the competition in times of reduced liquidity.
Do we have the right processes and decisioning in place?
- Are the right underwriting criteria in place?
- Do we have the appropriate checks in place to minimise potential fraud?
- Do we target sale and leaseback, and if so, how do we do this safely?
- What should our approach be towards used equipment?
Is it business as usual, or what new approaches should we consider and implement?
The following template is one approach to assessing your key business functions and processes.
It’s important that the business completes an ‘as is’ honest assessment and rating of current organizational capabilities across the key business functions. Where gaps exist, formulate a project plan to implement the required remedial actions that protects your business from the worst elements of the crisis.
Whilst it’s clearly impossible to see too far into the future, in the medium to long-term we may come to see this time as a positive turning point for the asset finance industry.
One thing is for sure, as an industry we are intimately connected to the real economy and our collective actions in the coming weeks and months will have a lasting impact not only on the health of our own businesses, but the wider economy at large and we wish all well in the coming months.
The team at Invigors and Alta have experienced the challenges arising and lessons learned from the previous 2008/9 crisis.
Observations from our team included:
‘Of critical importance was understanding the inherent value in the equipment and proactively developing strategies to maximise earnings from both assets remaining with the lessee as well as developing creative redeployment and remarketing strategies’ – Ian Robertson
‘It is so important to have strong customer and security documentation in place to enable securing and repossessing assets and minimise portfolio losses’ – Kieran O Brien
‘True and genuine Leadership is even more relevant during times of storm. Employees need to be heard, understood, recognized and appreciated by their leaders despite tough decisions are to be made. This assures the team remains intact and all actions will be executed with heart, brain and the needed courage to act’ – Alexander d’Huc
‘Make sure that you have robust and well tested business continuity plans in place covering inhouse operations and all outsourced operations’ – Tor Bowen
‘It is vital to have regular business reviews of captives to ensure ongoing regulatory compliance and risk controls cover the various categories country, counterparty, interest / FX and operational risk’ – Paul Johnson-Ferguson
‘Now during tough times is the right time for vendor finance companies to differentiate, step up and support their partners. Partners still remember the companies that switched off the funding & service taps in 2008-09′ – Nick Feasey
* Ian Robertson (pictured) is the executive director of Invigors EMEA, an Alta Group Company. This article first appeared in the Alta Group blog.
Alta Group and Invigors
Alta Group is a global consultancy that provides research, leadership support and advice covering all areas of equipment leasing and asset management. It has operations throughout the world, including Invigors, which provides a range of consultancy services to the asset finance industry across Europe, the Middle-East and Africa. These include corporate restructuring, strategic marketing and research, M&A, asset and lifecycle management, funding, tax, regulatory and accounting services, and business transformation. The group's crisis support team offers support in areas incuding crisis management diagnostic; commercial decisioning support; trouble shooting of portfolios; remarketing and redeployment strategy development and oversight; recommending process fixes and improvements; interim management and surge support.