CVD-19: Are Your Credit Terms In Line With The Times?

GKG Law Firm Advises Review and Revision of Credit Terms to Account for Retailer Shutdowns and Potential Payment Problems

01 April

Do Your Credit Terms Account for Coronavirus Driven Disruptions?
By: Brendan Collins and Oliver M. Krischik, GKG Law, P.C.

In the last two weeks, the number of coronavirus cases has quintupled across the world, causing major disruptions to global shipping networks as governments impose lockdowns on cities, regions, and entire countries. The coronavirus pandemic, and the measures to contain it, have caused abrupt changes in consumer behavior, companies’ productivity, and in turn, companies’ financial solvency.

While transportation providers continue to move goods, many wholesale and retail locations have closed, precluding final delivery. Many companies are also struggling to preserve cash flow. For transportation providers, this means that some customers may not be able to pay shipping costs pursuant to the agreed credit terms. Although carriers should have contractual language permitting them to exercise liens on goods in their possession, and auction them as a last resort, this can be an expensive proposition with unreliable returns.

Coronavirus Disruptions for Importers and Retailers

Credit to shippers and importers is a pillar of the freight transportation sector. Transportation companies offer terms based on business credit reports generated when the customer first enlisted. In many cases, these agreements are cherished relics of long-standing business relationships. The custom of original business credit checks followed by a history of timely payments are generally enough for transportation and logistics providers to mitigate those risks while offering competitive terms. However, it may be time for transportation companies to revisit the credit terms furnished to customers, particularly importers that handle goods sold at retail locations.

Review and Update Your Credit Terms

The first questions are whether your company offers credit terms to shipping customers and, if so, whether that is reflected in a contractual agreement. If it is not subject to an agreement, you may simply wish to cease offering these credit terms for the near future unless you have good reason to believe the customer will be able to pay if the coronavirus lockdowns continue.

If those credit terms are reflected in a credit agreement, you should review the agreement and determine whether you have the contractual right to discontinue providing service on credit and whether there are limitations on your rights in that regard. Again, if you do have the right to terminate your offers to provide a service on credit, you should determine whether you are in a position to offer credit and whether the customer poses a safe credit risk in today’s environment. The same considerations should apply if a new customer asks for credit terms.

Transportation and logistics providers continue to move needed goods (including emergency medical supplies) during these challenging times, and it is important that they insulate themselves as much as possible from the coronavirus’s effect on shippers and importers.

If you have any questions about credit terms or issues of non-payment related to the coronavirus, please contact Brendan Collins ( bcollins@gkglaw.com ; 202.342.6793) or Oliver M. Krischik ( okrischik@gkglaw.com ; 202.342.5266).