Sadly, the effects and repercussions of the forced shutdown of certain sectors of our economy will be experienced for years to come. I am no economist, but I predict that the most painful trailing ramifications are likely to come in 2021/2022.

Certainly, the restaurants that manage to survive the current social and economic crisis will be struggling for a long time to dig out. The same goes for cruise liners, hotels and food service distributors. Many companies are staying afloat on borrowed funds, but how long can they hold out? It’s hard to get new loans or lines-of-credit from your bank with weak financials. Will the federal government be able to bail out everyone in need in 2021? Where would the money come from? There are simply no guarantees.

Many companies in our industry, including my own, purchase credit insurance to help mitigate the risk of bad debt. Selling in the meat industry is so much riskier than selling produce or other groceries as the costs of the products are so much higher. It’s easy to have $100,000 in accounts receivable to just one customer if you’re selling meat, even if your terms are as tight as net 7 or net 14 days. Meat plants and distributors carry millions in aging receivables each week. That’s a lot of risk to carry, especially in this economic environment.

My credit insurer, Nationwide, sent me a letter this summer to inform me that they were getting out of the business of insuring receivables in our industry. No doubt they’ve had too many losses this year and they can see the writing on the wall. Who can blame them for throwing in the towel.

It’s a good thing we maintained coverage this year, since we experienced a record amount of bad debt from customer bankruptcies and closures. But what about next year?

So far, our insurance broker has been unable to find us receivables coverage for 2021. The other companies that offer this type of insurance, namely Euler and Coface, are being very careful given the current economic climate. Even if you can find coverage, you will definitely pay more for it, and the underwriters are being even more picky about which customers they will insure.

Our insurance broker is still optimistic that he will find us coverage for next year, but it will involve me getting financials from many of our customers for evaluation by the underwriter.

So now that the risk of bad debt is falling squarely upon many of us in the meat industry — with possibly little help from insurers — it’s time for us to re-evaluate our credit terms and policies.

I’d suggest that you quickly update your credit applications and your credit files. You may need to lower your credit caps, tighten up your terms and get additional information from your customers. I’ve had to resend new credit applications to companies that have been buying from us for decades to update their information, even asking some of them to start the credit process all over. I’ve also included new language on our applications that details what will happen if they refuse to pay and we have to get lawyers involved, God forbid!

For those of us in sales, having serious credit conversations is one of the least desirable aspects of our job. But this is the time to protect your company, your income and your future by insuring that you’re limiting your exposure to the many businesses that may be forced to close in the next 12 to 24 months. That’s just the sad reality of this whole mess, and we need to get out in front of it with our preparations.

What other steps are you taking (or would you suggest taking) to help mitigate the risk of selling meat in this environment?

The COVID credit crunch: Is the worst yet to come?

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