The New Economic Normal Is NOT Normal

Market Blueprint

China trade disputes. Brexit. Falling oil prices. Big-box retail collapse. Coronavirus. Iran conflict. Slowing Chinese GDP growth.

With almost daily shifts in the global geopolitical and economic landscape, business leaders cannot become complacent. Particularly if your business is entirely domestic, it’s even easier to ignore what may seem like distant issues on the other side of the globe. The reality is that any one of your customers could fall victim to sudden rises in component costs, disruptions to their supply chain or the loss of a key client caused by this global instability. This sudden shock could cause them to go from boom to bust overnight leaving you with outstanding receivables and serious financial strain.

The global economy is experiencing lower investments and increasing external pressures that are leading to slowing growth and increased insolvencies. In 2019, for the first time since the Great Recession, the U.S. recorded a 2.4% year-over-year increase in business bankruptcies with 38,944 cases filed according to the American Bankruptcy Institute and Epiq System.

The recent coronavirus outbreak is an additional stressor on an already too-slow world economy. The epidemic is expected to reduce 2020 Chinese GDP growth by 1% at a time when Chinese corporations defaulted on $20 billion in business loans in 2019 alone. Out of human necessity, the Chinese government is shifting focus from making agreed-upon product purchases stipulated in the most-recent U.S. trade deal to devoting money and time to contain the deadly outbreak.

What does this all mean? This uncertainty has two-fold implications for your business. Upstream, you must keep close tabs on supply chains to ensure vendors are stable and you are prepared for any changes to pricing and/or supply. Downstream, you must keep an even closer eye on your key clients’ businesses to continually assess their financial viability and adjust credit lines accordingly.

To protect you from the inevitable “when” moment that a key client(s) declares bankruptcy or defaults on their payments, a trade credit policy will reimburse you for their unpaid invoices.

In certain cases, a trade credit policy will also cover losses should a bankruptcy court try to claw back past client payments that the court deems were preferential/unfair.

Trade Credit policies can be customized to insure all, or a portion, of your receivables. They are particularly valuable should most of your revenue come from a small number of high-volume, low-margin clients, or if your receivables are the largest asset on your balance sheet. Trade credit policies also support your existing credit department with ultra-sophisticated credit verification technology to ensure risks are identified and appropriate credit limits set.

Contact Alper’s Director of Trade Risk Management Gary Kirshenbaum to design a trade credit policy that ensures you continue business as normal in an increasingly abnormal world, 312-867-7306 or GKirshenbaum@AlperServices.com.