|By Blake, Marilyn|
It is generally agreed that when the U.S. economy is struggling, many U.S. -based businesses feel financial pain. Call it the trickle-down or trickle-up theory, but regardless of the direction of corrective now, the overall economy and individual companies must take action. Businesses, for instance, can adjust operations in an effort by management to meet their budgeted profit expectation, and they often seek to balance out revenue and expense variances throughout the course of the year. They can potentially cut expenses by laying off staff because revenue isn't as great as expected, or they can increase the price they charge for their products and services to try to cover expenses.
In the past 1 2 months,
Nix Nonpayment Vulnerability
The low-margin nature of the telecommunications industry and the fact that the transport of calls occurs through multiple companies means your business is particularly vulnerable to the financial consequences of nonpayment of receivables. Many of you may have dealt with this kind of bad debt. What can an insurance provider offer or do to prevent, or at least mitigate, bad debt losses? Isn't credit risk just an unavoidable cost of doing business?
The simple answer is no. There has been, and remains, a market that will insure against the possibility of a receivable becoming uncollectable due to the failure of the payee. Credit insurance was born at the end of 19th century, but it was mostly developed in
You may be surprised at how costeffective credit insurance can be when compared with writing off bad debt. This type of insurance reduces balancesheet and earnings volatility. It also alleviates a risk situation where you have a large credit extension to one company. As an estimate of cost, for only 10 to 30 basis points 1/10 to 3/10 of 1%) of revenue, you can insure your accounts receivable against credit loss.
For a firm with
In the event that your company will need to eliminate part of your workforce to reduce expenses, you will be faced with many questions aboui whom to lei go and for what reasons. If you act improperly, you could be questioned and potentiaìly sued by the terminated party for employment practices liability (EPL), which is an exposure to legal liability caused by an employee, past employee or potential employee claiming their rights have been violated. Discrimination based upon race, national origin, sex, religion, physical disability or age could be used as examples of what the employee may claim.
To be dear, we are talking about a reduction in force, but EPL claims can come from current employees, past employees and future employees. All are protected. Statistically, when it comes to having an EPL claim, the odds are stacked against employers. Take a look at what they say: Three out of every five employers will be sued for wrongful employment acts, 25% of federal court cases are related to employment, and employers/defendants lose 60%-70% of all
EPL policies are readily available, although terms and conditions can vary from one insurer to another. In general, EPL covers four types of claims: wrongful termination, sexual harassment, discrimination and workplace torts. Policies that are offered today also will offer loss prevention and risk management services tools and services free of charge. The tools can include employee handbook templates that spell out your standard operating procedures, and services can include a minimal amount of consultation time with a law firm that specializes in EPL matters.
The Value of Vacancy
Maybe you own a building that, due to the struggling economy, you have not needed, or you are a landlord and your tenant went out of business. In either case, the property sits vacant but still has some economic value to you. The problem, however, is that many insurers believe that property will not be maintained, if for no other reason than it will not have people visiting it daily to see developing problems. Insurers, therefore, want to limit their exposure to an unoccupied property.
A standard Insurance Service Offices (ISO) Commercial Property Policy addresses vacancy, but if you do not understand the terms and conditions, it could create problems. The ISO vacancy provisions applicable to owners or general lessees of buildings were strengthened over the years and are currently quite clear. The 1995 form deemed a building vacant if 70% or more of its square footage was not rented or used to conduct customary operations. Some insured companies got around this requirement by renting out what were really vacant parts of their properties for a dollar a year, or some other nominal figure. ISO has dealt with this problem in the 2000 program by stating that a buuding is vacant unless at least 31%-33% of its square footage is rented out to someone who uses it to conduct customary operations or is so used by the building owner.
You must thoroughly understand the vacancy definition to avoid nasty surprises at claim time. If such a structure is vacant by the above definition) for more than 60 consecutive days prior to a loss, there will be no coverage for losses stemming from vandalism, sprinkler leakage (unless the system is protected from freezing), building glass breakage, theft or attempted theft. Of course, these are just the types of losses that a vacant property is most likely to incur. Furthermore, the payment for losses that are covered will be reduced by 15%.
In challenging economic times when a business is already potentially feeling financial stress, the loss of a receivable from a bankrupt vendor, and the cost of defending an employment practice claim or dealing with the diminished or excluded value of a property claim could push the firm to the brink of financial failure. When solutions are available, the knowledge of your insurer of products and your company will be paramount to a positive outcome for everyone.
The reality of businesses taking correcttive action in a struggling economy is alive and well.
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