Richard Wilkins is Elavon Europe’s Head of Credit. With almost 25 years of experience in risk governance, strategy and exposure in both the retail and commercial environments, he explains how talking to your payments provider could help you weather this financial storm, and be ready to hit the ground running when you’re ready to restart trading.
“For businesses struggling during the pandemic there’s understandable concern about how little is coming in, compared to how much is going out, in refunds and bills. It seems instinctive to protect cash-flow and cancel all out-goings,” says Richard Wilkins, Head of Credit at Elavon Europe.
“But seemingly intuitive knee-jerk reactions can lead to complications later – particularly when things improve and you’re ready to start trading again.”
Cancelling contracts or direct debits to protect your cash-flow could see you spending in ways you didn’t plan – such as racking-up banking charges when they bounce or are returned.
Another unseen risk comes if one of those you cancelled was for your payments processing. It could effectively shut down your merchant account.
In the short term, it keeps money in your bank, but if any outstanding invoices aren’t paid then the resulting liability may be registered with the card schemes such as Visa and Mastercard. That could result in future merchant account applications being declined, and what happens then when you want to restart taking payments?
“Keeping your account open – even if it’s been ‘paused’ – will mean you can start accepting payments again as soon as lockdown lifts,” says Richard.
Those who closed or defaulted on those accounts, at the point lockdown lifts, may have to find a new provider; all while vulnerable to the industry’s changes in risk profiling, which may mean facing higher costs or tougher contract terms.
“We’re already seeing a change in the industry’s appetite for risk,” says Richard.
“With rising chargebacks and many customers paying out more in refunds than they’re taking in sales, we predict businesses in some sectors could find it harder than others to secure a payment provider. And – if they can find one at all – terms may not be as favourable as they were before.”
What should I do?
Talk to your trusted business advisors and take legal advice before taking any action with your processing account. It is important also to talk to your current payments provider.
Elavon Europe has solutions to support businesses in need – whatever your size. Most payment providers have options to help.
Given the range of firms we work with, from local traders to international corporations, it’s not feasible to outline a single support approach that works for all. We didn’t do that when we started working with you, so we’ll work just as uniquely with your business now to get you through this.
“Risk management is about operating with the best information available. The more we know, the more we can do,” says Richard. “Those businesses that go to ground make us fear the worst. That’s the brutal reality.”
For businesses that are changing their operating models, Elavon Europe has made it easier than ever to move your payments online; transitioning your existing Point-of-Sale and supporting existing accounts to pivot quickly.
“We’ve seen this with pharmacies, supermarkets and those customers with a key social role to play,” says Richard.
“Transitions to online accounts have been lightning-quick, allowing our customers to play their vital roles right now, but also helping their business evolve and survive to be even more robust for the future.”
While some payments providers have switched from same or next-day funding to delayed funding across their entire customer-base, Elavon Europe is looking at ways to help protect our customer’s cash-flow, even when it’s not flowing at all.
One proactive step we’ve taken is to move some customers from Gross to Net settlement. Instead of paying once a month via Direct Debit to cover fees, you don’t pay any increase, but pay as you transact.
“We’re mindful that many workforces are furloughed, and lots of our customers don’t have the money in the right place or right account, which means they’re facing costs they don’t need,” says Richard. “When direct debits are rejected they lead to bank costs, and chargebacks. Causing yet more pain for customers already struggling.
“When that happens, we contact the customer. If they’re unreachable, we have to put that account on hold. Now that doesn’t mean they can’t trade, but it does mean they may not get their funds, until we can re-establish communications and confidence that they are still trading normally.
“So, with the best intentions, we’ve moved those we can from Gross to Net settlement within the terms of our existing contracts. For those we can’t – it’s a waiting game to see who settles their direct debits and then manage those on a case by case basis.”
Adversity brings opportunity
The dramatic move to online could have other implications. While face to face trading has suffered during lockdown, it’s not yet clear what shape the new normal will take.
“While bricks and mortar outlets are closed, and some have moved online. Many may decide the success they see in their new trading environment prompts them to rethink their return to the high overheads of having a High Street presence. Or they may feel they’re now in a semi-comfortable position and remain watching, planning and adapting, as the world finds its ‘new normal,’” says Richard.
“Never before has everything paused on such a scale, and given everyone a chance to see how robust and recoverable your business is.”
“Entrepreneurs in this environment will thrive. Adversity brings opportunity,” he adds. “That primary instinct to survive, may make your business into a more resilient and sustainable model."