How to manage commercial risks during the COVID-19 crisis

(Source EDC )

With COVID-19 continuing to spread around the globe, Canadian exporters need a concrete strategy to manage business risks.

During Export Development Canada’s recent webinar Coronavirus and Global Supply Chains, Dominique Bergevin, Director of the Export Team – GO Portfolio, pointed out that the virus is not only “a serious global health problem, but also a scourge for companies. Big or small, they are preparing for every eventuality and trying to understand this galloping virus that crosses all borders”.

China, where it all began in December 2019, accounts for almost 30% of the world’s industrial output and is the world’s leading exporter of goods. To contain the disease, however, it has closed its factories and restricted movement, a measure with far-reaching consequences for global supply chains.

“The impact on the global economy and Canadian exporters will ultimately depend on the severity and duration of the epidemic. But these are still two big unknowns,” explained Ms. Bergevin.

The Senior Account Manager of EDC’s Commercial Markets and Small Business Team (CMSB) explains that “to deal with a situation like this, companies need a risk management strategy. You have to know how to anticipate, not just react.

Ms Dali divides the strategy into four main areas:

1. Risk avoidance. Do you have a plan B? If you outsource manufacturing, do you have a strategy in case you need to use a local manufacturer? If you sell abroad, is your buyer list diversified, or do you put all your eggs in one basket? Given currency fluctuations, do you have an effective currency risk management strategy in place?
2. Risk sharing. Do you use subcontractors? Do you collaborate with partners? Do you concentrate on just one product line, or do you have several? That way, if one is affected, others can be spared. Essentially, the aim is to reduce the negative impact on your business.
3. Risk mitigation. Reread your contracts. Did you consult a lawyer when you drafted them? Many Canadian companies operate on a purchase order basis, and don’t structure their contracts in the way that legal advice would suggest. Do your contracts include clauses to protect you in the event that you are unable to meet your contractual obligations, or that an exceptional situation like this arises? Do you have a contingency plan for your funds? What about your working capital?
4. Risk transfer. Here, we’re talking about insurance. Are your customer accounts protected? Remember, they’re your most valuable asset. If you offer customized products, does your insurance protect you in the event of contract termination? You could lose a lot, given the costs already incurred. If your goods are transported by ship, do you take out marine cargo insurance? Depending on your line of business, you may need letters of credit or surety bonds – performance bonds or advance payment bonds. Are you protected in this respect? Do you have wrongful call insurance?

The risk of non-payment caused by the COVID-19 crisis worries many Canadian exporters. Ms. Dali explains that credit insurance is essential protection for your business. Here are four tips to help you find the coverage that’s right for you:

1. Precise risks. The policy should be structured or adapted to suit your business needs. Make sure that the risks insured are those against which you need protection.
2. Credit risk appetite. If you do business in high-risk markets, or with high-risk buyers or sectors, you need to confirm that your insurance company’s credit risk appetite is sufficient, and that it is prepared to support you in times of crisis.
3. Optimum value. Value for money is important. Make sure you understand what you’re getting for the price you’re paying.
4. Good understanding. You need to be aware of your obligations and responsibilities as an insured regarding documentation and appropriate protective measures.

Find out more about the COVID-19 Business Credit Program (BCP).