I’m aware that some industry bodies are looking into the merits of government-backed credit insurance, and from the few industry participants I’ve spoken to, they’re all in favor of it.

 

The general line of thinking is that scrap companies and steel/alloy makers use trade credit insurance to regulate who to sell to and how much to sell. Every business will be taking bigger risks upon restart and now credit insurance companies are cancelling coverage on large die casters and smelters in the US. 

 

For privately held credit insurance companies the move to cancel coverage makes sense since they also have their own business to protect. But future transactions are at risk because of past due receivables and credit limits. 

 

As a US alloy producer put it: The fear of not getting paid is one of the biggest deterrents that keeps businesses from taking risks and if this spreads through the industry, some argue that maybe the government can help guarantee receivables instead of handing out money.

 

“What we need is to push for government-backed receivable insurance for business-to-business transactions. Our biggest fear right now is shipping to our customers that may not have the ability to pay us on time or at all. We also want to make sure our suppliers are not worried about getting paid by us. This could end up in a vicious cycle,” the producer said. 

 

Other added that even if alloy producers return to “business as usual”, cash flow sucks from previous months’ decline in business and slow payments. As they see it, a government receivables assurance would go a long way and is not a hand out, but rather an encouragement to do more business and level the playing field by allowing businesses to take risks and promote growth. The fear is that without this the scrap and alloy industry will not be able to get back to “business as usual”.

 

This is an important conversation for the industry to have. What are your thoughts? If the government can’t/doesn’t step in are there other solutions? Let me know and I’d be happy to write a follow up.

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