Factors on the Ground: The Continuing Impact of the COVID-19 Pandemic

As COVID-19 impacts every aspect of business around the globe, we have been gathering first-hand perspectives and facts on the ground from a wide variety of factors. This week we spoke with Rachel Hersh, Sales Director, North America of Prestige Capital in New Jersey; Patrick McKee, VP Sales & Marketing of Millennium Funding in Williamsville, NY; and Paul Schuldiner, Executive Vice President of Rosenthal Trade Capital in New York City. All three finance companies provide financing to companies in all life cycle stages and across a broad range of industries. Here is what they are seeing as they work on the front lines of funding small businesses across the country.

Q. With all the impacts of COVID-19, what challenges are you seeing among your client base?

Rachel Hersh: Many clients who are selling to shuttered retailers are trying to shift to online sales, cutting overhead and trying to obtain government-backed loans. Additionally, income for our construction-related clients is down due to building restrictions. In general, we are seeing lower factoring volume across the portfolio and seeing account debtors taking more time to pay invoices … not a great combination. However, at the end of the day, we need to provide clients with a new level of flexibility and compassion that is unprecedented.

Q. How has COVID-19 uniquely affected the staffing industry?

Patrick McKee: For clients who provide staffing to non-essential businesses, the negative impact has been quite profound. For those who provide staffing to hospitals in the healthcare sector, the negative impact has been lessened as some firms are providing temporary staff needed to fill in for healthcare workers who have been afflicted with COVID-19. However, if you look across the healthcare industry, the demand for staffing is down due to elective surgeries being postponed until COVID-19 subsides and the long-term needs are known.

Q. How has COVID-19 uniquely affected the supply chain finance industry?

Paul Schuldiner: The supply chain is extremely vulnerable right now because of the reliance on China for consumer goods being sold into retail and e-commerce channels. We are also seeing that the raw materials needed for pharmaceutical, healthcare and food-related products to help battle COVID-19 are also significantly impacted. Companies are looking to diversify their product sourcing beyond China, but establishing new supplier relationships takes time and isn't easy to replace one supplier with another.

Q: How has COVID-19 impacted the retail sector?

Paul Schuldiner: With the many challenges facing the retail sector right now, clients are finding it even more difficult to gain visibility on what customers will want next season or later this year. Companies are also trying to make projections for what their fall and holiday product needs will be at a time when it is unclear if consumer and business spending will return to pre-pandemic levels. The demand will depend on which retail stores ultimately open and how many. It is clear that e-commerce opportunities will continue to grow, especially as the brick-and-mortar retail footprint continues to shrink.

Q. What are you doing to help small businesses respond?

Rachel Hersh: We are making companies aware of our financing program, which relies on the creditworthiness of their debtor rather than their own company’s financial strength in order to determine a client’s eligibility for our program. Our referral partners are actively making introductions to their clients and prospects who need cash flow to continue operations. We are also introducing clients and prospects to advisors and lenders to assist them in obtaining some of the unsecured government-backed loans to assist with their liquidity needs.

Q. What unique impacts are you seeing?

Patrick McKee: In the staffing area, mainly those who were selling non-essential business as well as those that were working in the energy sectors (oil and gas) have been hit very hard. Demand for oil has collapsed, resulting in negative oil prices, storage capacity issues and sweeping layoffs.

Paul Schuldiner: We are seeing a number of requests from companies to finance the production of personal protective equipment and other high-demand products. These deals can be particularly challenging for lenders to underwrite because Chinese suppliers are requesting 50-100% prepayment before they will release the goods. While purchase order funders typically won't provide a funding mechanism to cover advance payments, cash deposits or prepayments in China, they are well equipped to issue letters of credit in these situations. Unfortunately, many Chinese suppliers are refusing to accept letters of credit and insisting solely on prepayments. The private lending community is filling the void in this space right now and that is likely to continue until suppliers ease up on their requirements. Experienced purchase order funders should remain committed to sound funding practices like issuing letters of credit and should not be tempted to take on additional risk through funding prepayments.

Q. Are you doing anything differently than what you usually do?

Rachel Hersh: We are all working remotely for the first time in our 35-year history. We are actively funding the food and beverage industry — specifically clients with healthy food products — as their purchase orders have increased as a result of COVID-19. These companies are taking advantage of this opportunity to get into stores where previously it had been more difficult to gain entry. Lastly, we are providing many of our clients accommodations on invoice eligibility for the slower-paying account debtors. We are hopeful that this is short term in nature, but it very well could be months or even years before we are back to normal.

Q. How has the pandemic affected your business model, risk appetite and the way you service customers?

Patrick McKee: There really has not been any effect at all on any of these. In the past 24 years we have witnessed a variety of threats to our industry. We have and will remain positioned to adjust quickly to any current and future threats. Companies will always need receivable financing. We will always be there to make sure they receive it.

Paul Schuldiner: Many of our clients are seeing an uptick in direct-to-consumer sales and this trend is likely to continue with more consumers opting to shop online from home than venture out to brick and mortar stores. Omni-channel is becoming more direct-to-consumer, with businesses pivoting to create alternative sources of revenue. Funders will also have to get creative and pivot alongside their clients to provide other forms of inventory financing as this trend develops further.

Keep an eye out for more Factors on the Ground to hear perspectives from around the country and from factors serving different industries.