The coronavirus pandemic has reached the United States. Events of all kinds are cancelled, people are isolating themselves, and the stock market is crashing. These are strange days, indeed, and things are changing almost by the minute. It’s perfectly natural to be concerned about the future of your business.
If you extend credit to consumers, you may be wondering if, how, or when COVID-19 will impact their ability to pay you. If payments do slow down or stop due to coronavirus, what should you do? Although no one really knows how long these conditions will last, here are some ideas for your consideration.
Potential financial impact
The United States has been through tough economic times before. However, the financial roller coaster caused by coronavirus is unprecedented. Across the globe, people are either becoming sick or have been asked to self-quarantine. Some businesses have shut down because there are not enough workers, or remote work simply isn’t an option. Others, like restaurants and retail shops, are suffering because customers aren’t coming through their doors.
For consumers and business owners, these worsening situations are leading to layoffs, unpaid leave, or limited cash flow. Although the government is taking steps to assist American families and boost the economy, the near-term effects are already evident. However, most economists believe the United States will successfully weather this financial storm.
“Activity should rebound once the virus is contained,” predicts Scott Brown of investment firm Raymond James. “But it will likely be a question of months, rather than weeks.”
Coronavirus and the credit bureaus
Three of the four major credit bureaus have issued statements regarding financial hardships caused by coronavirus. They advise consumers to be proactive about their financial situations and continue to monitor credit reports for fraud. They also remind consumers that they add an explanation statement of up to 100 words to their report. An example statement offered by Equifax reads, “Be advised that the negative accounts on my credit report are related to the Coronavirus. I intend to make these up as soon as I can.”
Above all, all three bureaus recommend that consumers contact lenders if they’re having a hard time making payments. The bureaus are careful, though, to say that lenders are not obligated to provide any accommodations. Basically, it’s completely up to you as a creditor to decide what allowances you’ll make for consumers who can’t pay due to COVID-19.
What you can do for your customers
So if your customers call you about coronavirus-related hardships — and they most likely will — what will you say or do? The credit bureaus and the Consumer Financial Protection Bureau (CFPB) advise consumers to ask you about the following:
- Changing their payment due date
- Waiving late fees or overdraft charges
- Waiving interest charges
- Adjusting payment amounts
- Deferring payment (interest will still accrue)
- Arranging a forbearance plan (delay payments with no interest accrual)
If you report payments to the credit bureaus, you may simply choose not to report COVID-19-related late payments. You might offer one or all of these options based on your services, products, or the customer’s contract. Your customer’s previous payment history or your relationship with the customer might also influence your decision.
Again, at this time you’re under no legal obligation to offer any adjustments outside the terms of your contract with the customer. Remember, though, a little kindness now can go a long way towards loyalty later.
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