Oil & Gas

Don’t be Fooled: Your Receivables Are at Risk Right Now

Accounts Receivable  |  3 min read

Have you heard what’s going on in the oil and gas sector? 

Things have officially moved from bad to terrible. Yesterday, CBC reported that Royal Bank, CIBC and Scotiabank have added nine major oil and gas firms to their loan watch lists, indicating these companies are having trouble paying their bills and are at an increased risk of defaulting on loans. 

Now if highly secured creditors like the banks are worried, everyone these companies owe money to is in much greater danger of not being paid. And if that’s not directly your business, exactly how many degrees of separation do you and your customers’ operations have?

It’s a sprawling web of dominoes that leads to virtually every Canadian business in some way.

Whether or not you are directly involved in oil and gas, this DOES concern your business.

And regardless of where the OPEC negotiations go, the world is still sitting on an unprecedented oversupply of oil. Even if it happens (and it’s all hypothetical now), putting a $50 floor on the price will NOT change the underlying supply situation, or even begin to solve the problems in high-cost oil producing nations like Canada. The minor market rebound to date is an illusory one built on hope and optimism, not supply-and-demand fundamentals.

We don’t know the names of the companies on the banks’ watch lists, because those businesses are big and to name them would in itself create a frenzy.

How big? Well, Moody’s has just publicly downgraded Canadian Oil Sands, Cenovus Energy and Encana Corp. to speculative grade, and moved Baytex Energy Corp., Paramount Resources Ltd., MEG Energy Corp. and Bellatrix Exploration Ltd. into ‘C’ level credit ratings. These may or may not be among the companies on the big Canadian banks’ watch lists, but they give an idea of the scale we’re talking about: major companies with many thousands of unpaid suppliers.

The real eye-opener is the size of the companies being downgraded. They’re big ones.

What can you do to avoid being hit? 

Since you’ve got no power over the global economy or its direct repercussions on failing debtors, you need to identify and take proactive steps that are within your control. 

  1. Monitor your Accounts Receivable like never before. Use a credit monitoring service to help you know what is really going on.
  2. Don’t be patient! Those who wait to be paid will be the ones hit with bad debt. Be aggressive in defending your credit terms. 
  3. Don’t be soft. Become a top-priority credit provider with your customers. Stand up for your employees and your livelihood!
  4. Freeze delinquent accounts. If your customers are slow to pay because they are having trouble collecting, set new terms leveraging the failure to meet existing ones. If the terms are not acceptable, the risk is simply not worth it right now.
  5. Push risky accounts to collections FAST. Give a final short-term deadline and be deadly serious with it, or if you’e already been strung along, submit the accounts today. If there is any chance of getting paid, a good collection agency will succeed where you most likely would not. To minimize risks, go with an agency that does not charge you if the collection effort is unsuccessful. You need performance.

Don’t let false optimism lull you into a passive mode—instead use it to your advantage in moving to the front of the line. 

If you have any questions, please reach out to me directly, or talk to a debt collection specialist at 1-888-797-7727.

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Brian Summerflet Author: Brian Summerfelt

President and CEO of MetCredit, Canada's top-performing consumer and commercial collection agency

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