Trade Credit Insurance and the industries you should be concerned with in 2020
Market Trends
- Automotive: As diminishing economies of scale reverse consolidation, more companies will look for a slice of the pie using cost minimalization as a competitive advantage, making cars cheaper.
- Consumer Goods and Retail: Cost-control strategies and rising levels of supplier quantity will reap diminishing returns, calling for new approaches to gain a sustainable competitive advantage.
- Energy: Government intervention will remain constant due to increasing competition, price volatility and supply concerns.
- Financial Services: Distribution strategies, sophisticated technology platforms, streamlined business processes and managed costs will likely dominate consumer decision making over the actual products.
- Healthcare: Private sector will see an increased role due to rising costs in developed markets and inadequate provision in developing markets.
- Manufacturing: Automated manufacturing processes will likely move some production to low-cost locations while a rising demand for personalization will shift other, customized production to local markets.
While the United States has experienced one of its longest periods of economic expansion in history (over 100 months), many economists forecast that both the U.S. and global economy are headed for a slowdown in 2020. Although 2019 has brought high business and consumer confidence, alongside historically low unemployment rates, market analysts see trouble ahead due to rising interest rates and other labor constraints. On top of these issues, many argue that a tax reform policy that has benefitted workers in the short term, will be undermined by recently implemented tariffs and trade policy risks. A potential economic recession may not seem like the biggest issue to the everyday employee but can be a major issue for business owners who are not adequately prepared.
Euler Hermes, a global trade credit insurer, has perhaps better intel on the current health of the economy than any other organization. During the company’s history, they’ve insured and covered unpaid invoices for over 52,000 business across 52 countries. In an NBC Article earlier this year Euler Hermes recognized a warning of impending recession – an inverted yield curve. The yield curve inverts when borrowing costs on short-term debt rises above the cost for long-term debt. “It’s a dangerous and upsetting harbinger of the future of the economy,” said Dan North, chief economist at Euler Hermes North America. “Typically, when the yield curve inverts for even a short period of time, we enter a recession about a year later,” he said.
With recession looming, it is important for business owners, especially manufacturers, traders and service providers, to review their trade credit insurance. Trade credit insurance protects companies against losses from non-payment of a commercial trade debt, oftentimes due to bankruptcy or insolvency. In the simplest form, trade credit insurance is bad debt insurance. It not only provides protection but also gives businesses a way to manage commercial and political risks of trade. While most companies turn to trade credit insurance when they expect risks or credit issues sometime in the foreseeable future, Colony West recommends applying this insurance while business operations are running smoothly. Implementing this type of insurance from the start can help with long-term risk management strategies, prevent headaches when an actual problem occurs and allows the business to grow their client base while managing any associated risks.
If you think Trade Credit Insurance would be a good risk management tool and help grow your business, talk to a Colony West Advisor today!