In an exclusive interview with CanadianSME Small Business Magazine, Andrew Perkins, Senior Vice President leading NFP’s North American Trade Credit and Political Risk practice, sheds light on the financial risks Canadian SMEs face amid new U.S. tariffs. With three decades of expertise in trade credit and political risk, Perkins provides crucial insights into the secondary effects of tariffs, the most vulnerable industries, and how businesses can safeguard their financial stability. From common misconceptions about trade credit insurance to strategies for mitigating risks and securing financing, this conversation is a must-read for business owners navigating today’s complex trade environment.
Andrew Perkins is the senior vice president leading NFP’s North American Trade Credit and Political Risk practice. Before joining NFP, Perkins served as vice president and commercial director for Atradius CYC’s Canadian branch. He brings 30 years of experience in the trade credit and political risk market, having held senior leadership positions in sales, underwriting, account management, e-commerce, and product development at leading underwriters of trade credit and political risk insurance.
With the recent implementation of U.S. tariffs on Canadian imports, what secondary effects should small and medium-sized businesses be most concerned about beyond the direct impact of increased costs?
Immediately, most businesses are likely to be concerned with renegotiating their contracts with their US-based customers or US-based suppliers to account for the tariffs or counter-tariffs. However, the medium-term secondary effects of these tariffs could include a reduction in revenue or an increase in costs for Canadian businesses if the tariffs can’t be passed along the supply chain or to the end consumer of the product. The same may be true for US businesses that import goods from Canada. Canadian corporate bankruptcies are already increasing, with an approximate 30% increase in 2024 versus the prior year. These tariffs will very likely increase the risk of corporate bankruptcies further, meaning that Canadian companies selling to other companies, either within Canada or to the United States, are at increased risk of suffering bad debts in their accounts receivable. Trade Credit Insurance can protect companies from bad debts due to their customers’ bankruptcy or insolvency reasons.
Given your extensive experience in trade credit and political risk, what industries do you see as most vulnerable to the financial risks posed by these new tariffs? How can businesses in these sectors best prepare?
There is no easy way to predict which will be most affected by the tariffs as they could have unintended and unforeseen consequences for many industries. With a Trade Credit Insurance program in place, companies don’t need to guess how the tariffs will affect the financial condition of their customers. Desjardins recently issued a report that identified industries they determined will most likely be affected. Among the top five were primary metals, food and beverage, chemicals, machinery and aerospace parts, followed by pulp, paper and wood products. A full list can be found here.
Many business owners may underestimate the importance of trade credit insurance. What are some common misconceptions about this risk management tool, and how would you address them?
There are several misconceptions.
The first misconception is that if a company hasn’t had a large bad debt in a couple of years that this product is not necessary. However, like other forms of insurance, it is common to have a few years without a potentially catastrophic loss, but there is always a significant risk that a company will eventually have a large or multiple losses in their accounts receivable due to customer insolvency. Trade Credit Insurance protects against the unforeseen bad debt losses.
A potential second misunderstanding is that Trade Credit Insurance is only for larger companies. With the right specialist to guide a company, trade credit insurance is an effective tool for SMEs.
The third mistaken belief is that Trade Credit Insurance is only for export sales, but we can design a program that protects against losses for both domestic and export sales with one of the many excellent underwriters that we place business with.
You mentioned a client who avoided financial difficulty because trade credit insurance covered unexpected losses from longstanding clients. Could you elaborate on how trade credit insurance can protect businesses against unforeseen bad debts while providing other benefits, such as improved financing?
Improved financing is one big benefit. Financial institutions generally feel more comfortable providing a loan using the accounts receivable as security when they are insured, possibly increasing the company’s credit line.
Another is the third-party financial vetting and monitoring of a client’s customers. Once a program is in place, the underwriters will review customers’ financial profiles to issue a credit limit for that customer for the policy. They will also monitor and regularly review the customer’s financial profile for early warnings of financial distress. This serves as a valuable support tool, enhancing the client’s existing credit management practices.
As we wrap up, what practical advice would you give Canadian business owners looking to safeguard their bottom line in the face of these new trade challenges? How can they leverage tools like trade credit insurance to mitigate risks and potentially grow their businesses?
Due to the tariffs, Canadian businesses may be considering new clients within Canada or other parts of the world such as the UK, EU, Mexico, and Asia. Trade Credit Insurance is an excellent tool for this sales expansion as companies will be selling to new clients that they are not familiar with. Trade Credit Insurance can help companies vet these potential new clients so they can be more confident when expanding their customer base.
