The Big Three–Ford, GM, and Chrysler–had not yet even taken their corporate jets to Washington to beg Congress for a bailout when a bit of news surfaced that could have repercussions for far more than the auto industry. In mid-November, three large European credit insurers–Coface, Euler Hermes, and Atradius–declined to provide further coverage to suppliers for Ford and GM. Chrysler was not immune; a couple of days later, Ottawa-based Export Development Canada, which writes coverage for Canadian companies that it supplies with parts, announced that it would not be writing any new policies, nor could existing policyholders increase their coverage.
While this is certainly not good news for the automakers, it’s worse news for their suppliers, those smaller companies whose risks just grew exponentially. Most U.S. auto parts suppliers operate without credit insurance and the implications can be scary.
You might want to consider whether your business-owning clients are prone to similar exposure. According to Peter Seneca, a partner at Securitas Global Risk Solutions LLC in Berwyn, Pennsylvania, there are quite a few industries in which businesses might find themselves holding the bag for customers who ordered and then defaulted on payments or simply went out of business. Securitas is a brokerage specializing in credit insurance, and Seneca explains that as business losses from debtors become more common, that’s helped to generate interest among business owners in such coverage.
Seneca points out that this has been an issue in other industries, particularly retail, prior to the news of the Big Three’s difficulties, as well as businesses in construction, real estate, homebuilding, lumber, and even banking. Can your clients’ businesses require that customers pay up front for the goods or services they need, or will they lose too large a part of their client base? Can they afford to take the risk that clients will not pay their bills? Or will they simply cut off any customer who cannot meet these new conditions for a sale? In today’s economic climate, these are all issues they might need to consider.