Credit insurance crunch hurting U.S. businesses
Among popular Christmas season activities during recent years has been finding the Elf on the Shelf. The stuffed toy, about 12 inches long, delights children who wonder where in the house he or she may be hiding.
Thanks to COVID-19, a good place to start looking for the Elf this year would be the factory where the novelty is manufactured. The Elf, along with a substantial number of other products, may become a victim of the coronavirus. Blame a credit insurance crunch.
As a recent Associated Press story explained, many manufacturers and distributors rely on credit insurance. They obtain it to ensure they will be paid for products they ship to retailers. If a retailer is in financial trouble and cannot afford to pay for goods shipped to it by a distributor of manufacturer, credit insurance can take care of the problem. Without it, there is no guarantee of getting paid.
COVID-19 has changed the dynamics. Now, with many companies struggling, credit insurance may be getting more difficult to get or more expensive for some distributors and manufacturers. One cannot blame them: All insurance is based on risk, and the risk of a retailer encountering financial problems, perhaps even going out of business, has increased. That is so particularly for small businesses which constitute a huge chunk of the retail economy.
Among firms facing the credit insurance crunch is The Luminstella Company. It markets various products, including some under the Elf on the Shelf brand. Only 50% of orders for their products are covered by credit insurance — meaning the firm may not be willing to ship to some. The worst-case scenario could be a shortages of elves for the shelf, not to mention financial woes for Luminstella.
And Luminstella is just one of many manfacturers facing the problem. In addition to thousands of retailers.
As with the case of the unemployment problem in the country, there is ultimately only one solution: reopening the economy. Americans and their leaders must weigh how long they are willing to live with business restrictions imposed amid the pandemic. Economic suicide does not seem like a workable plan.