2022 administrative delinquencies hit 5-year high

SAN ANTONIO — Administrative delinquencies are on the rise as companies deal with increased macroeconomic pressures following the end of pandemic-relief funding. 

In fact, 39% of equipment financiers aid they saw an increase in administrative delinquencies in 2022, up from 19% in 2021 and 30% in 2018, according to the Equipment Leasing and Finance Association’s (ELFA) Collections Benchmarking Survey, which surveys financiers in the micro-ticket, small-ticket, medium-ticket and large-ticket markets. More than half of respondents said their delinquencies were flat, while 6% said they saw delinquencies decrease.

When asked about the trend moving forward, 31% of equipment financiers expect delinquencies to worsen, while 58% expect delinquencies to remain the same and 11% expect delinquencies to improve, according to ELFA.  

“Going forward, there’s a little bit of optimism, but over the five-year historical, there’s still some concerns with administrative,” Jim St. Clair, director of portfolio management at DLL, said Wednesday during a panel discussion on the survey results at ELFA’s Credit and Collection Conference. 

Ways to avoid administrative delinquency include new booking initiatives, increased focus on reducing delinquencies and improving cash applications, and better technology supported by improved internal processes, St. Clair said. Still, issues such as booking challenges due to complex deals, ACH reject rates, staff shortages and new hire training make it more difficult, he said. 

Changing market conditions

In 2023, 57% of equipment financiers expect overall delinquencies to worsen, 29% expect overall delinquencies to stay the same and 14% expect them to improve, according to the survey. The 57% who expect conditions to worsen represent a nine-year high for the survey, while the 29% expecting conditions to stay the same is an eight-year low. 

While the panel addressing the survey occurred during the conference on Wednesday, data collection began prior to the recent string of bank collapses, St. Clair said. 

“What’s interesting is that we sent the survey out on Feb. 17, and on March 10 Silicon Valley was closed, on March 12, Signature was closed, and then on May 1 First Republic closed, so this was prior to those bank closures and 57% believed delinquency will get worse over the next four months,” he said. “It represents the highest-percent reflection over the last nine years, and I don’t know how much it would have changed the answers, but it does support the results.” 

Over the past year, market conditions have changed significantly with the decline in Paycheck Protection Program (PPP) loans and overall tightening of credit markets, Daniel Goderis, director of portfolio management at GreatAmerica Financial Services, said during the panel. 

“We all sat up here a year ago and everything was good: all these companies have their PPP money, their credit looks stellar, they’re all paying their obligations, we have the lowest delinquency, lowest losses and we’re all sitting up there going, when’s it going to end,” he said. “It’s here now and … bankruptcy, Chapter 11s, were up 105%.” 

Chapter 7 and 11 bankruptcies are up significantly year over year on the heels of a 15-year low in 2022, St. Clair said. “There was really nowhere to go but up,” St. Clair said.