Episode Transcript
Speaker 0 00:01 <inaudible>,
Speaker 1 00:03 welcome to the trade securely podcast changes constantly and in business. Sometimes you see it coming, sometimes you don't. Recently there've been stories about a slowing of the economy and arise in insolvencies. And we've talked about this in <inaudible>
Speaker 2 00:18 shows. I'm Janet Eastman and this month on the trade security podcast, my guest is Michelle Davey. She's president of credit usher and Michelle's based in Montreal. She's here to provide an overview of what she sees happening in the market and what her customers are telling her. Welcome to the trade security podcast. Michelle, good to speak to you.
Speaker 3 00:38 Thank you, Janet. Nice to speak to you as well.
Speaker 2 00:41 So I know that you have been in the receivables insurance industry for a long time, but you have kind of a varied background, so provide a little bit of a background so people understand how long you've been in the industry and what you've actually done in the industry.
Speaker 3 00:56 Okay. I've been in the industry almost 20 years now, but prior to that I was the credit manager and uh, and, and we'd lived a, a variety of experiences depending on the company I was with. Uh, which eventually led to me becoming an underwriter and then, uh, and then a broker and so on. So, so here you have it. I've been around for quite some time. Um, and uh, and thoroughly enjoying what I do.
Speaker 2 01:24 You've seen the landscape from sort of all all points of view, haven't you?
Speaker 3 01:28 Yes, actually, yes. We, we, uh, I was a credit manager in the 90s when we went through a recession, a at that time and a, and then an underwriter in the early two thousands. And, uh, and I never looked back after, uh, after being on the sales side. Um, really and truly, um, my idea, uh, was to help companies, um, avoid the pitfalls of becoming bankrupt themselves, right. When there's an insolvency.
Speaker 2 02:01 Yeah. So you have a perspective from both sides. You've seen the sands shift many times, so we spoke a few weeks ago and you indicated that you'd seen a recent uptick in interest for receivables insurance from your clients. So what's actually fueling that interest?
Speaker 3 02:20 Well, we don't know for certain, um, however, I, I know that our insurers are seeing an increase in claims. So, uh, I, I think there's a lot of insert TNT, uh, out there as the, um, uh, the economists are all speaking toward a recession in 2020 or a slow down there. You know, we never know until it actually happens that, uh, what the impacts will be. Um, but I, I think that, uh, that could be fueling, um, the interest and, uh, so yes, we're getting from, from all industries we're, we're seeing, uh, a renewed interest.
Speaker 2 03:03 Right. And we've been warned that insolvencies are going to be increasing. Are you seeing the impact of that? I know you said you've seen no more claims from your clients, but what about actual insolvencies?
Speaker 3 03:17 Well, that's just it. Um, the product protects against insolvency and payment default and yes, in fact, we are seeing, um, a few more insolvencies than what we would normally see. Uh, very often the, the product is used for, uh, the, the nonpayment portion. Um, and that seems to be fairly stable. Um, but the insolvencies are on the rise from what I can see.
Speaker 2 03:45 <inaudible> now with regards to bankruptcies, there's something called preferential debt payments that a business businesses creditors really should be aware of. So what should businesses know about these payments? Cause I know you have an interesting story about this.
Speaker 3 04:02 Well, yes, actually I do, um, you know, a few of our clients, uh, we're dealing, uh, I don't even know if I can say the, the industry, but, uh, with the certain, um, a group of companies and the group of companies had lost some class action lawsuits, uh, which, uh, then, um, you know, and, and this is a theory only that they decided to use the insolvency laws as a management strategy, uh, per se. Um, so they all filed for a credit or protection. In doing so, they told our policy holders that as suppliers they would be paid, even the portion that was prior to the insolvency. Um, so at when upon discussions with our clients, uh, that are dealing with these, uh, these companies, what we suggested very strongly to them was, let's make the claims anyway, because the next step for that group of companies is to go to the Supreme court.
Speaker 3 05:14 And get another judgment. So they're, they're appealing, uh, which means that it could take a couple more years. And by the time we, uh, we see what, what actually comes of it. If they lose a gain, uh, they could very well and you know, it's not 100%, but they could very well turn around and say, okay, we were insolvent and therefore those payments we made to suppliers were preferential payments, pay that money back so the trustee could in fact come back on my policy holders at a future date, uh, and, and claim back the monies that they should probably not have paid out. So, um, so that was our recommendation to the clients make a claim, even though you're being paid. We will explain this to the insurance companies and uh, you know, and, and you can actually tell the insurance companies that you're being paid, but what we're actually protecting is the eventuality that there's a, a second loss in the lawsuit and, and any ramifications that may come from that.
Speaker 2 06:27 So I'm going to ask you to just clarify a couple of things. So your, your clients would have been paid by these C these companies, but they have also file a claim just in case, you know, three, four or five years or whenever this, this judgment comes down again, just in case the creditors don't come back and say those were preferential payments. So they get paid, but they've also filed a claim and it just sort of sits there waiting just in case. Is that correct?
Speaker 3 07:00 That is correct, yes.
Speaker 2 07:02 Wow. Now, you know what, that's something that I, I'd never heard of. And I imagine most businesses would be completely unaware of. They would think, great, I got paid, you know, that's done and dusted. We're good. Right? But that's not the case.
Speaker 3 07:17 It could very well be that these were preferential payments and the trustee is within their rights to request that money back. So you know, that that's one of the things we need to, you know, we need to sometimes think outside of the box what could happen next. And, uh, and, and really, uh, with this group of companies, it's something that, uh, frankly, I, I haven't, um, seen before and, and in those terms exactly. But, uh, but it could happen. So it was a preventative claim
Speaker 2 07:53 that's, um, that's a scary prospect when you think, you know, you think it's all sorted in X years later somebody comes along and says, give me that money back. Like, Oh yeah, that's very, very scary.
Speaker 3 08:07 And what we're seeing in the U S most frequently with preferential payments is the 90 days leading up to the insolvency, the supplier gets paid and finally the debtor becomes insolvent and the trustee goes after those 90 days worth of payments. Um, so that, we do see that a lot happening in the U S I can't say that we see it as much in Canada, although it is part of the law as well. In Canada, they can do that. Um, but like I said, those, uh, those companies are pretty savvy and have some really good legal legal teams. So we're, we're not trying to out think anyone. We're just trying to protect our clients.
Speaker 2 08:51 Yeah. Very interesting. Let's talk a little bit about the kind of challenges that a supplier can come under when a customer is in financial trouble. So some companies have been known to use some pretty heavy tactics to keep supplies coming in even though, um, they could be just days away from filing for a bankruptcy. You've seen this happen. You've had people I think as a credit manager kind of threaten you, haven't you?
Speaker 3 09:15 Yes, yes. Actually I have a really funny story. Um, and I, I think I can probably release the name of the entity, uh, here because it's so long ago. But, um, when I was a credit manager, we were dealing with Eatons and Eaton filed twice the first time in 1997. Uh, they filed a, they paid suppliers 100 cents on the dollar and then they went a second time a couple of years later. Um, and the company I was working for had continued to deal with them, but on a Cod basis and we couldn't get insurance on, uh, on this risk. It just wasn't going to happen until the company emerges from bankruptcy protection. And even then, I couldn't get credit insurance. So it just did not give me a whole lot of, um, a comfort. So at some point, I, the buyer, uh, gotten in touch with me, heard that I was the one holding up the orders because of we wanted to get paid prior to the shipments going out.
Speaker 3 10:24 And, uh, so she called and said, we will remember you, Michelle Davey. And, uh, you know, and it's, uh, it was a little nerve wracking. Um, I must say, but, uh, we held strong and sure enough, within a month or two they were bankrupt. So, um, you know, these suppliers have attended, uh, sorry, these, uh, debtors, those that feel that they have the power against their suppliers will exercise, uh, some pretty heavy duty tactics, uh, so that they can get their merchandise in and uh, and so that they can hopefully survive. At least that's what I think they're trying to do. They're trying to survive. Um, but, uh, but the supplier is, uh, very often in a very uncomfortable spot. So when my clients call me with that type of reaction and, and we've seen it happen with some others, um, and here I won't name them because they're a lot more recent. Um, you know, we, we give them, um, the tools to work with, uh, we'll give them the advice on, on how to handle that type of situation. Now naturally, the decision making power is still in their hands. They get to choose. But we're here as an outsider, not in the thick of it, uh, to help, uh, actually navigate these, these, uh, tough waters.
Speaker 2 11:58 Yeah. And you also might just based on your access to information, have more visibility of what is actually going on that they're not aware of.
Speaker 3 12:06 Oh. And that is, that can happen. Um, very often we don't just have one client with a claim against a specific debt or we may have several, uh, policy holders who are dealing with the same people. And, you know, we're seeing it from several sides.
Speaker 2 12:24 <inaudible>. Um, I'd like to shift gears a little bit and talk about some of your clients that are exporters and some that are just starting to export. What advice do you give to them when they begin moving their business to other countries?
Speaker 3 12:38 Well, it depends on how savvy the company is, but my first and foremost, my recommendation would be deal with the experts, deal with someone who knows what they're talking about. Um, we have, uh, partner companies or, you know, uh, uh, friends of, of credit or shore, uh, that actually help, uh, some of our clients when, when prompted, okay, my client has to ask me for resource before I will, uh, I will refer them to somebody else. Uh, but there are companies that can help you set up companies and other areas, uh, other countries. Um, you know, there's a, a lot of, uh, services that are available, uh, to, uh, those who want to start an exporting and, uh, including some of our insurers who have a great deal of knowledge, um, on local economies and various countries. So, uh, uh, and I, I can't single out one, uh, PR, uh, insurance company because several of them actually do have, uh, economic reports on, on local levels and some pretty interesting countries. So, but yes, deal with the experts. That is exactly the, the right way to go. Um, and to avoid pitfalls and, you know, just like in credit check references, make sure that you're, you're dealing with someone who, uh, you're comfortable dealing with. That's not gonna mislead you.
Speaker 2 14:18 Right. I guess, I mean, exporting would be one of those huge activities where you have to really understand your landscape to make sure you've got your bases covered. And it's probably a great challenge to try and do that on your own. So having that expert advice where you can just say, what does this mean or what's going to happen if I do this? That's going to help people move their businesses forward.
Speaker 3 14:43 That's exactly right. And you know, one of the things we tend to look for in accounts receivables insurance is, uh, the political risk. Um, you know, that can have an impact on whether you will be paid no matter how. Uh, willing, your client is to pay you. Maybe you can't say like get the currency out of the country anymore or you know, there's a number of items that could go wrong. So deal with the experts, uh, whoever that might be. And like I said, uh, we're, we're always willing to, uh, to help our clients, uh, with, uh, knowledge, knowledge is power.
Speaker 2 15:23 <inaudible> <inaudible> what other concerns do your clients have right now?
Speaker 3 15:28 Uh, there, well, you know, my clients are actually very happy because they have their insurance policies. Um, so they, they are a fairly comfortable, we do get a lot of questions on, um, you know, will, why is this debtor refused or, or you know, what's going on? So that's more of what we're seeing these days. How come we can't get an approval on, on such and such a, a client? Um, so, you know, what we're telling them is pull a credit report, let's have a look at it together and, uh, we'll go through the credit, the, the items of the credit report, uh, one by one to see exactly what, you know, is this a good risk? Isn't this a good risk? If we do see something positive that's worth bringing to the insurer, we'll send it to the insurer and challenge their decision. Um, so that, you know, that is a lot of what's going on these days. Um, but yeah, we're, we're, we're helping our clients and better understand their clients and, and what's going on, uh, in, in those scenarios.
Speaker 2 16:38 Right. What are some of the key things that you're telling your clients to watch for in the coming months
Speaker 3 16:45 of impending doom? Um, Sloan as in payments, uh, which is a sign of, you know, little to no cash flow or losses. Uh, the, that payment performance is a key to certain things. Again, I'll bring you back to Eton's. Uh, we hadn't seen a slow down in their payments trends, so that's not always the precursor to an insolvency. Um, but I do have an interesting, uh, example. Uh, one of my clients was in the lumber industry selling tool pallet manufacturer and, uh, the pallet manufacturer, uh, was being funded by a U S bank. He couldn't get traditional financing here in Canada. Uh, so, um, you know, the, the credit limit kept going higher and higher and higher, whereas the insurer had stopped, uh, increasing the credit limit and they were waiting financial statements in order to, to do so. Um, at the end of the day, uh, the bank in the U S, uh, went into receivership and
Speaker 2 18:02 the banker,
Speaker 3 18:04 the bank went bankrupt, so they called all the loans or the trustee called the all the loans. The pallet manufacturer had to follow suit and go bankrupt. And my client was left holding a debt of $600,000, 200 of which was covered, 400 of which was not. So another thing we're telling people is be cautious. If you want to overshoot your credit limit, you can, but by all means, make sure that you're comfortable doing so. Um, so his bank looked at him twice and uh, and said, never again. You are not going to exceed those credit limits.
Speaker 2 18:48 Ouch. Yes. Well that is a claim. Yeah, that is a cautionary tale. So it just goes to show you, you don't really know what could come up at any given time. Right. So
Speaker 3 19:02 exactly. We've seen a lot of interesting cases, uh, in credit insurance. It's been a very interesting career path for me. And, uh, I must say, you know, even today, as much experience as I have, we're still learning new things and we're still seeing new things and uh, you know, uh, it's a, it's a very colorful world, if you will.
Speaker 2 19:28 Well, and I guess that's what keeps it interesting. It sure does. Yeah. Michelle, thank you so much for joining us on the podcast today. We really appreciate you sharing your experiences and your insights with the trade securely audience.
Speaker 3 19:43 Thank you, Janet. I really appreciate this opportunity.
Speaker 2 19:46 My pleasure. That's our show for this week. Please check out our Twitter, LinkedIn, and Facebook feeds and subscribe and share this podcast with your friends and colleagues through iTunes, Google play, and Spotify. Until next time, I'm Janet Eastman. Thanks for listening to the trade securely podcast.
Speaker 4 20:03 The trade securely podcast is brought to you by the receivables insurance association of Canada, whose member companies help Canadian businesses succeed and grow securely.
