Are we having fun yet?(extra credit)

It feels like we are all in a video game, the type where you keep running and the bombs are dropping all around you. Your job is to avoid the explosions, but occasionally you get hit. Your only comfort is in knowing that a competitor got hit worse.

Such is the state of the credit professional today. We are all waiting to see who the next big bankruptcy might be. POW! There goes Quebecor, one of the largest printers in North America. BAM! Hoboken Floors, a $600 million flooring distributor, files for liquidation, then Tirecraft of Canada files their re-organization notice. It seems very few industries are immune to the capitalistic weeding out process we call bankruptcy.

But that is the key, isn't it? It's time for the weak to surrender to the strong; a natural evolution of sorts. Seasoned credit professionals have recognized the business cycle and are prepared to reduce their exposures where appropriate. Our challenge is to convince the sales staff that what was an appropriate risk just two years ago is no longer a reasonable risk to sustain. That is, the likelihood of a marginal account filing bankruptcy is much higher today than two years ago.

Credit is much more fun in a good economy, but it is in a down economy that we truly earn our salary and the respect of our peers. It is having the fortitude to explain, over and over again, why an insolvent account is not a reasonable risk. It is maintaining composure when the salesperson argues about lost revenues (and commissions).

At the moment, those companies that have already entered into a credit insurance product may have a competitive advantage, since they purchased when the market permitted the best rates and coverage available and can continue to sell with the reassurance that they have hedged a portion of their A/R and transferred some risk to an insurance carrier.

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Many corporate credit managers are seeing their insured credit facilities shrink and some insurance carriers have begun to cancel coverage at an alarming rate. Having been through a down cycle, they're preparing for the worst. Most importantly, they seem to be withdrawing coverages from marginal accounts, or marginal industries. One underwriter explained, "If we were on the fence last year, we have moved to the conservative side of the fence this year." Simply put, they are reducing risks where the likelihood of bankruptcy has risen substantially.