Archive for the ‘Commercial Lenders’ Category

Is YOUR Business selling to RETAIL?

April 24, 2017

It wasn’t that many years ago when a manufacturer didn’t really worry about Accounts Receivable (A/R’s) if one sold or supplied to a BIG NAME firm, e.g. General Motors (GM), Chrysler, Delphi, Kodak, Blockbuster, Schwinn Bicycle, Marvel Entertainment, Hugo Boss, Reader’s Digest, Trump Hotels, Sears, Radio Shack, etc., because they always paid you and you really didn’t worry the same as the neighborhood “Mom & Pop” operation, right? Even if you gave 30 or 60 day terms and didn’t get paid for 90 days, it just meant you waited but why would you really need worry.

Unfortunately, today’s world has changed substantially and auto makers like GM had to restructure with governments bailing them out, Radio Shack went under and Sears recently said there was “substantial doubt” as to their long-term operating ability. WOW! Many of the names listed above have all had to restructure and that meant unsecured vendors were not very happy.

So how do YOU manage your business to ensure that you will be paid and remain afloat? I have met so many companies, through the years, that would often have 80% of their sales from a small number of customers and I would always recommend prudent Risk Management – “don’t put all your eggs in 1 basket” – and suggest they consider diversifying their markets and considering options for transfer of their risk, e.g. trade credit insurance. Some clients neglected to follow any or much of my advice and I do know of several who are no longer in business.

Trade credit insurance is often used by firms in Europe but not so often in North America. Why? Europeans may have been less reliant on one’s reputation, perhaps, but my own banking background tells me that North American banks don’t suggest the option, don’t know enough about it and don’t vary credit terms adequately to encourage YOU obtain this. I also hear that terms are much more favorable in European banks for those companies who do purchase the option so many of you don’t feel the savings warrant the added expense.

Where I do find many Canadian (can’t say the same is more or less frequent in the US) companies using Trade Credit Insurance is in their Export Financing but why only for those types of deals? Perhaps you Factor your A/R’s but I just read “Wells Fargo & Co. is among the firms no longer providing Sears vendors with factoring — short-term financing that helps gives them a cushion.” Imagine then what I seem to hear more often than not – insurance works when you really don’t need it but often doesn’t respond when you truly have the need. Do you feel that way or have you heard this said?

This is why I continue to preach Risk Management and supplementing with a suitable Risk Transfer mechanism (insurance should not be solely price-driven when purchasing but knowing what is and is NOT covered and buying the policy from a reputable agency/brokerage with adequate Errors & Omissions insurance of their own and a suitably rated (I tend to like AM Best A-ratings or better) underwriter for your General Liability, Trade Credit, Cyber, Crime, Specialty and Directors’ & Officers’ Liability policies.

I do hope you realize that insurance buying may be 1 of the most important business decisions you make each year but I do know that you overlook this importance because of the trust you place in your providers and the lack of understanding of what is really behind an insurance contract.

 

Let’s discuss today! I can be reached on Twitter (@WRiskManager), on LinkedIn or Facebook and by e-mail – larryewinsurance@gmail.com

 

Info derived from http://www.msn.com/en-ca/money/companies/sears-payless-woes-push-retail-vendors-to-get-more-militant/ar-BBAcFIC?li=AA54rW&ocid=spartanntp and other online material.

Student Apartments, Residences, Housing, etc. – NOT Apartments!

September 20, 2011

Any property investor or LENDER in the Province of Ontario, CANADA who has an equity or financial interest in student accommodations should take special care when purchasing, renewing or accepting as collateral an insurance policy – insurance companies do NOT like to insure any properties with multiple students living in any unit.  Many insurance companies decline the class of business so that anyone who is selling insurance through those companies may not be insuring you, whether you hold an insurance policy or not!

If you are reading this and own or lend on student housing where the insurance policy does not identify as such, e.g. shows as “apartment building” on your policy – do yourself a huge favour and ask to have the policy amended by the insurance company – not just the agent/broker.

Some commercial realtors are not yet realizing the predicament in which this places an investor – buyer or seller (and also the realtor) – if you own any of the many student apartments being advertised as such.  And many insurance salespeople are also not aware of the consequences to the client, the firm (brokerage or agency) or the insurance company if written as an apartment building and a claim occurs.  If declined by an insurance company for “material misrepresentation”, our whole industry is tarnished by your oversight and I, for one, do not appreciate hearing of another insurance company claim that was not paid, legitimately or otherwise.

Insurance companies on both sides of the border do not like multiple tenanted risks – “rooming houses” by definition – and most of these student apartments have 5 in each unit; well, how can anyone describe this occupancy in any other terms?  If you don’t wish to take my word for it, please do some research and you will quickly learn and agree with me.

Many of you (I have to take each of you at your word when I hear that Aviva, Economical, etc. are insuring you) have an insurance policy that may not respond to a claim in the event of a loss – property or liability – because the insurance company will not insure “student residences”!  Yes, this is common knowledge among the insurance community so anyone who is insuring as an apartment building had better be extremely careful in dealing with you; do NOT rely on their written evidence that you have an insurance policy but insist on the insurance company showing on the policy or verifying in writing that you have students occupying the property.  There are acceptable insurance markets for this category of risk – Lloyd’s being one, Zurich (yes, we have access for fire-resistant structures through this carrier) and, possibly, others through “subscription” or wholesale facilities.

I specailize in working with investors, lenders and property managers so why not just contact me for advice and assistance to ensure that you do not face the terrible consequences of having an insurance policy but not really having insurance?  I have an appointment this week with someone who thought State Farm still wrote student apartments until they contacted the company to determine otherwise (after I encouraged them to obtain written verification that they do have coverage).

And one final note: ask your insurance professional to explain cancellation when done “ab initio” – it means that you were cancelled as if there never was any insurance policy written.  I am sure that you do not wish for that to happen to you!