Since the start of 2016 the volatility of the global economy has come to everyone’s attention. The impact of the collapse in energy prices, its effect on global currencies, the slowdown in the manufacturing sector and maybe most importantly, the increase in claims being paid by credit insurance companies like Coface all point to higher risk of non-payment and an economic slowdown; an economic storm.
Also, the Fed is requiring US banks to stress test for negative interest rates, which are already in place in Japan and several European countries as a desperate attempt to hold-off recession.
- Don’t assume that you are immune to the potential problem. It’s easy to feel safe because your customers “have always paid” and are “low risk”. Many times, what you don’t know can hurt you. Most of the companies I know who have had a key customer default on payment say it was a complete surprise. After all, that customer has “always paid” in the past. Don’t drive your car by looking in the rear-view mirror.
- Have conversations with your key customers. Ask them how an economic slowdown could impact them. Do they have large sales concentrations? Do they sell to customers in other countries where risk is elevated? For Coface’s latest Country Risk Report, click here.
- Consider getting credit insurance in place now before it’s too late. Credit insurance is like any other form of insurance in that it must be bought before a loss is imminent. The time to insure your home is NOT when a tornado is tearing the roof apart! The same is true for protecting your receivables and cash flow.
Given these developments, protecting your capital base from payment default may be more important than even 60 days ago.
What are other steps to take to protect from an economic storm?
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