What – me worry?

So here it comes, a not-so-fairy-tale end to the seemingly never-ending fairy tale bull market. Over past few years, governments have been fighting a rear-guard action pulling out all the stops to keep economies growing, all in the name of trying to avoid a recession. The downside is that they have expended so much of their ammunition that they have little left to fight this economic dip which, indeed, could well be an economic chasm. Add to this that the global supply chain is a reality. As crucial links in industry supply chains fail, contracts are no longer met because of lack of raw materials, components and services sometimes resulting in lethal consequences for those companies that cannot get replacement supplies. Given the breadth of the global supply chain, we are left with the conclusion that not only will there be a dip, but that it will be a wide-spread dip.

The Receivables Insurance Association of Canada is made up of all the major credit insurers in Canada and many of the specialist brokers that focus on credit insurance. They report that when prospects are offered the opportunity of purchasing this vital financial tool in “good times”, those that do not purchase often only focus on the fact that they (the prospect) “know” all of their clients and are sure that those clients will always meet their obligations based on existing relationships and payment experience. Of course, the brutal reality is that many of those well-known clients may be so badly affected by the economy that they just cannot stay in business.

For those that did have the wisdom and foresight to purchase a credit insurance policy, well, they are in a solid position to implement strategies on how to not to become a statistic: 

  • by using their credit insurance policies to maintain healthy working capital loans (thanks to banks recognizing credit insurance policies as collateral enhancements for accounts receivable thereby increasing advance margins and the value of accounts receivable that are eligible) which is often essential in recessions when suppliers are shortening payment terms and otherwise restricting trade credit;
  • acting on credit advice from credit insurers regarding industry weaknesses and failing buyers;
  • maintaining coverages on their existing buyers (in high risk times the loyalty of existing policyholders is recognized) so that they can trade securely knowing that if the economic crisis ends up in a buyer failure, their cash flow will be protected via a claim payment; and,
  • safely exploring new markets and/or buyers with the help of credit insurance intelligence and coverage.

The bottom line? Credit insurance is a vital financial tool that needs to be in a Canadian business’ arsenal – especially in times like this.

If you would like to learn more about how credit insurance can protect your business speak with a specialist who is a member of the Receivables Insurance Association of Canada (RIAC) or get in touch at info@receivablesinsurancecanada.com.