[00:00:03] Speaker A: You have no doubt heard the statement, don't have all your eggs in one basket. And that's what comes to mind with this real life industry story. From the trenches. Welcome to the Trade Securely podcast, brought to you by the Receivables Insurance association of Canada. I'm Janet Eastman, and today my guest is Michelle Davey. She is president of credit Assure, a broker of credit insurance in Quebec. Michelle, welcome to the Trade Securely podcast. Good to see you.
[00:00:33] Speaker B: Thank you, Janet. Nice to see you, too.
[00:00:35] Speaker A: So this is a really interesting story that you have for us because you had a client who ran a seasonal business, and he had one customer that was worth 80% of his business revenue, which is huge exposure. So you encouraged him to get trade credit insurance coverage, and he went with your idea, and he got that coverage. And it was really a great decision on his part because at some point when his customer filed for creditor protection, he was owed $1.6 million.
So my question for you is, when you first broached that subject of credit insurance, how did he react?
[00:01:24] Speaker B: He was actually quite open to it. He knew there was a risk. It had been making him nervous. And the way he was looking at this, the insurance would help him sleep at night.
[00:01:38] Speaker A: Very good. Okay, so you determined with your client that he needed coverage of about $2 million, but the insurance providers were not willing to do that. So what did you have to do here?
[00:01:51] Speaker B: Well, initially, when we were looking at insuring the business, he had $2 million outstanding on his receivable from that one client. So it was necessary to get that 2 million. And the insurance company we were working with at the time came up with a couple of solutions. One was, they don't do this anymore. So I hesitate to mention it, but at the time, they were covering for 100%. Now they pay out at 90, but in the day, they were paying out at 100%. So that was the initial quote, 1.5 million for 100%. And if we needed to go to the 2 million, they would pay out if there was a claim at 90%. So that's where their comfort level was.
That's not quite where the client's comfort level was. He would have preferred the 100%. And he knew having the 2 million outstanding on his receivable, that was a bit of a stretch.
What we ended up doing is.
[00:03:10] Speaker A: He.
[00:03:10] Speaker B: Ended up asking me, is there anything we can do? We went back to the underwriter. The underwriter, because my client says, if it's 1.8, we'll accept it. So I pushed for the 1.8 the underwriter wasn't so comfortable with that. 1.8 was still a 90% payout, but 1.6, he could up the 1.5 to 1.6 million at 100% payout. And that made the client comfortable. In the end, that's what he signed on.
[00:03:46] Speaker A: Okay, so basically, your client gets cover in place. He continues to do business with this customer, having no idea there's actually a problem within the business. And this is where your network connections as a broker really paid off. Tell me what happened.
[00:04:05] Speaker B: So I'm sitting in my office one morning and someone I know comes in and says, hey, did you know that Richter, who's an insolvency trustee, is sitting their cars outside of the buyer's offices?
And I thought, that does not sound good. Okay. Maybe they'd go to the gym together or whatever the case may be, but that really doesn't sound good in my mind. So what I did was I picked up the phone, I called my client, and I said, is there anything going on with your client? Have you heard anything? Is there any rumors, that kind of thing? And he says, not really, but I did get an envelope. This is just after the holidays. I did get an envelope. I haven't opened it yet. So he opens the letter and it says that they are postponing payments to their suppliers. So I put two and two together, and I said, you got to come in. We've got to write up this claim. Now. We filled out the claim forms together, submitted them immediately. He got paid out before the other suppliers, who didn't know there was a problem. It took a couple of months for the insolvency to actually concretize.
So my client got paid out when the other suppliers had just received the Trustee's paperwork.
[00:05:43] Speaker A: Okay, so the key point here is your connection to this person who saw this person in the parking lot, got the ball rolling immediately for your client. And this is why he was able to get paid out so quickly. Otherwise, he would have been sitting, waiting and waiting.
[00:06:04] Speaker B: He would have been waiting just like everybody else, because they had sent a letter saying they're postponing payments.
[00:06:11] Speaker A: That's what your network means to you, right? That's why that's so important to have that connection.
[00:06:16] Speaker B: It's so important to. Exactly. To have that open conversation with people and be inviting maybe to be able to receive that information, because not everybody wants to bring these things up.
[00:06:38] Speaker A: So would your client have gone bankrupt for sure?
[00:06:42] Speaker B: I'm sure he would have. It represented 80% of his business. So that was huge.
So a loss like this, when they filed, he was owed $1,595,000. So right under the $1.6 million coverage, that's a big loss. When a big loss like that happens, for sure it affects the business.
I think we would have seen what we call the domino effect in my industry, and that would have meant that he would have had to have gone through the creditor protection just like his clients.
[00:07:23] Speaker A: Yeah. So for you, what do you think is the big lesson learned from this from the trenches incident?
[00:07:32] Speaker B: Cover your assets.
Cover your assets. It's absolutely important to let the insurer worry about the risk, let the company worry about sales, right?
[00:07:49] Speaker A: Yeah, we do love to say that. Cover your assets, because generally speaking, your book of business is your biggest asset, and many companies don't get coverage for that, correct?
[00:08:02] Speaker B: That's right.
My understanding is the industry penetration is in that 20% range of what companies could be insuring. So there's an awful lot of companies that should get some coverage. And like I mentioned, the domino effect is hugely important. So when a big client files, the suppliers may follow suit. Yeah.
[00:08:31] Speaker A: Michelle, thank you so much for sharing your story with us today.
[00:08:34] Speaker B: It's a pleasure. Janet, thank you so much for having me.
[00:08:37] Speaker A: You're welcome. Michelle Davy is president of credit assure. She is a longstanding member of REACT, the Receivables Insurances association of Canada. And we will continue to have more stories from the trenches on the trade securely podcast, and you can watch for them on our
[email protected], follow us on Twitter and also on LinkedIn. And thanks very much for listening.
