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EPISODE TRANSCRIPT:

00:00:01

Alix McCabe: They may not be nightmare fuel for everyone, but if you're a business leader, there are words that can definitely lead to some sleepless nights.

00:00:08

Luis Mondragon: As consumers and as business owners, we keep hearing about recession, inflation, supply chain, political instability. How is that going to affect me? How is that going to affect my business? People are talking about it because there's concern about it.

00:00:21

Alix McCabe: So stop counting sheep and turn on all the lights as I recount the story of Summar Financial and the troubled times.

Welcome to Wheel of Risk, a new podcast series proudly presented by Allianz Trade. I'm your host, Alix McCabe. On every episode, we spin the wheel, land on a new worry, and then tackle it head on by hearing from business leaders who've been through it all before. Plus, we bring you expert advice to help you keep your business safe, secure, and well ahead of the competition. Go ahead, spin the wheel. We've got you covered.

Sure, it feels like the world's been a little unstable for a while now, but 2022 was particularly perilous in the world of business and finance. COVID aside, we also experienced political instability, volatility on the stock market, inflation, stagflation, and of course plenty of concern about a looming recession.

00:01:18

Speaker 1: Many economists agree 2023 could be really challenging.

00:01:21

Speaker 2: Despite five interest rate hikes from the Federal Reserve this year, inflation remains stubbornly, persistently hot.

00:01:28

Speaker 3: The fears this morning over the new recession forecast chances hitting 100%.

00:01:34

Alix McCabe: Add it all up and it's easy to understand why some business leaders might be feeling a little spooked. Maybe they're considering cuts to discretionary spending, or even worse, looking at layoffs and service reductions. Others may turn to borrowing money or extending credit lines, which can come with their own complications. But as the old saying goes, one person's problem is another's opportunity, and that's the kind of glass half full thinking that has me excited to introduce my guest for today's season finale episode. Luis Mondragon is the Vice President of Sales General Division at Summar Financial. Luis, welcome to Wheel of Risk.

00:02:09

Luis Mondragon: Thank you, Alix.

00:02:10

Alix McCabe: Thank you so much for being here, Luis. I'm excited to dig into your story. But before we do that, I'd also like to introduce my colleague who's joining the conversation to provide some of his own observations on the current global situation. Carlos Garcia is Sales Vice President for Allianz Trade in the Americas. Carlos, I really appreciate you making the time.

00:02:29

Carlos Garcia: Anytime. Thank you.

00:02:30

Alix McCabe:: So Carlos, you know the drill. We're going to spend the first half of the pod chatting with Luis, and then we'll come to you for some more perspective in the second half. So to start off, Luis, would you mind giving our listeners a little bit of background on what Summar Financial is all about? You're a factoring firm, am I right?

00:02:48

Luis Mondragon: That is correct. Summar Financial is a company based in Florida, was founded in Florida 18 years ago for international factoring. We focus 99% on international deals. And the difference that we try to make in the market is to provide personalized solutions for our customers through five main things, trust and integrity, commitment, putting people first, having an entrepreneurial spirit and working together to wow our clients. As you can imagine, we deals with currencies. We deal with different movements in economies all over the world. We touch thousands of customers now. If you look at the geography, I think we've been in all different continents, either with sellers or buyers. We like to address the issues of each of the parts of the world. And as you can see, it's a lot of things going on.

00:03:39

Alix McCabe: For those who aren't familiar with factoring, can you just explain quickly what it is?

00:03:44

Luis Mondragon: I said the best way to do it is early payment. We buy your receivables. We buy your invoices. Instead of you waiting the 30, 60, 90 days, we give you 80, 90% of the value of that invoice once the incoterms have been executed. And then we collect from your customer the balance at the maturity of the invoice.

00:04:03

Alix McCabe: Okay. And what can you tell us about your clients? Who are they? What do they do?

00:04:08

Luis Mondragon: They're exporters. I mean, all kinds of industries. We have more customers on the food side, but we also have customers on the technology side. We have customers on apparel, shoes, manufacturing, plastics, services too.

00:04:23

Alix McCabe: Okay. So really a broad customer base.

00:04:25

Luis Mondragon: Correct.

00:04:25

Alix McCabe: Could you give me an example of when a company might use your services?

00:04:30

Luis Mondragon: Well, every time that a company is willing to expand. I guess the general rule is if you have bank lines, use your bank lines to invest in your assets, in expanding your facilities, and let factoring help you with the cash flow. So as you're going to be expanding your business, you're going to need to invest more in raw materials or hiring people, and all that can be covered with factoring. Every time that you invoice, then we advance the money right away. Don't need to wait to get paid. So that gives you the cash flow you need to continue reinvesting in your business, managing the day- to- day while you do your investment using your bank lines.

00:05:11

Alix McCabe: So factoring is, frankly, sometimes seen as a competitor to credit insurance. So why would a factor get additional coverage through AR insurance?

00:05:21

Luis Mondragon: I think it's more a compliment than a competitor because what we do is non- recourse factoring. So we actually use credit insurance to control the (inaudible)  worthiness of our customers' customers. So we manage risks that way. For example, I mean, if we have a customer exporting t-shirts from India to the US and the buyer is Hanes, just to call any brand, we are going to buy credit insurance on Hanes. And based on the limit we get, that's the line we offer to our customer in India. So it is not competing at all. It's actually part of it. We will never be able to offer no recourse factoring without having credit insurance.

00:06:05

Alix McCabe: Working in a very complimentary way, as you said.

00:06:07

Luis Mondragon: That's correct.

00:06:08

Alix McCabe: So thinking about the current state of the world, how has demand for your services at Summar Financial changed or fluctuated recently?

00:06:17

Luis Mondragon: Well, there's a lot more demand for cashflow. I mean, banks all over the world, they are keeping the cash pretty tight. They don't know politically what's going to happen. They don't know economically what's going to happen. So in the other side, exporters, they need to continue running their businesses and look for alternative sources of finance, which factoring is one of them. That's a positive side of it. We've been growing dramatically in the past couple of years, and the demand for 2023, 2024, it looks very promising. The factoring business is growing.

The challenge here is that with the recession costs and the order logistics issues that are going around the world are causing is that the perceived risk of the buyers is being affected. You have all these companies in India exporting into US, for example. So they're going to be sending shipments. They promise a payment on certain day. Well, there's no containers. So it's sitting in the port for a long time, and if it's fashion, well, you cannot send it later. You cannot send the summer fashion in the winter. So there's a lot of problems, some short payments. There's a lot of problems with quality issues because it's been sitting in transportation for a long time. Things that are going to affect the perceived credit worthiness of that buyer. So credit insurance, they look into all these indexes, all these KPIs from companies, to evaluate risk, for everything's affected, and it's not necessarily a problem of the buyer or a buyer problem of the seller, it's just what's going on around the world. You have to adjust and look from that angle how you manage the risk.

00:07:53

Alix McCabe: Picking up on something that you just mentioned, your customers, how are they reacting in the current global financial situation? Are you finding that they are concerned about things like inflation and recession and political volatility and supply chain issues? Is this something that's coming up in your day- to- day interactions with your clients?

00:08:11

Luis Mondragon: Definitely. I mean, everybody's cautious about investing too much at this moment. Everybody's being very conservative. And also, they're adjusting too, because now was different in terms of what people are (inaudible) , in what people are spending their money on. I mean, all the indexes in late 2022 were very positive at the end thinking of avoiding the recession, inflation is lower, the interest rates adjustments are not as aggressive as they promised they were going to be. All these things are good signs to the world of economy. But still, everybody's very conservative on their approach, and banks are very conservative as well. So they're not putting too much money out there. They're not putting too much risk into the money they're lending.

00:08:56

Alix McCabe: So how do those things affect your ability to do business?

00:09:00

Luis Mondragon: I mean, as I mentioned in the beginning, it's just keeping track of what's going on around the world because when there's a crisis somewhere, there's an opportunity somewhere else. So from our perspective, the fact that banks are very tight about lending money opens a lot of doors for us. Now we need to be smart in which industries we're going to focus on and which territories and try to diversify as much as possible. Diversification's going to give you a more steady business. Sometimes if you focus too much on seasonal business, you're going to have always shortages throughout the year. So we try to diversify in order to keep everything steady.

00:09:34

Alix McCabe: Makes sense. And what does that diversification look like for you? Does it mean different markets, different sectors? What does that look like?

00:09:42

Luis Mondragon: Yes. All of that. It's all of the above because I mean, as I mentioned, we are probably heavily concentrated on the food side, and now we're going more aggressive into all the other industries, more manufacturing, more services to avoid that concentration and go into a more steady year.

00:09:59

Alix McCabe: So Luis, you touched on it a little bit earlier, but the word recession is scary for a lot of people. I understand though, that there can actually be a silver lining for your particular business. Can you tell us about that?

00:10:11

Luis Mondragon: That is true. I mean, high interest rates and tight supply of money, it's always an opportunity for us because buyers are going to be looking for alternatives to do business. For example, all this effort for near sourcing going from China to Mexico, for example. So buyers in the US are going to be looking for companies in Mexico to source what they were getting out of China. China is easing their COVID restrictions, but China got a huge impact. I mean, they're way behind the rest of the world, so markets don't want to take another risk of relying on a supply chain that they cannot count on because that issue has not been solved yet. So near sourcing in particular puts a lot of opportunities in markets that we're very comfortable with that are just next door to us. That's a great opportunity for us.

00:11:03

Alix McCabe: Near sourcing. Makes good sense. So Carlos, I imagine you have opinions on all of these topics as well.

00:11:11

Carlos Garcia: Yes.

00:11:11

Alix McCabe:Well, hang tight. So what we'll do is we'll hand the mic over to you in just a moment after a very quick break.

I'm Alix McCabe and you're listening to Wheel of Risk, a new podcast series brought to you by Allianz Trade. In the fast- paced world of business, there's no shortage of things to keep you up at night, but all business is about risk, trust, and reward, and we are here to help you minimize the former and maximize the latter. To learn more about how a partnership with Allianz Trade can benefit your organization, please visit Allianz-Trade.us/podcast. That's A- L- L- I- A- N- Z- trade.US/podcast.

Welcome back. Today we're speaking with Luis Mondragon, the Vice President of Sales General Division at Summar Financial, about the challenges of doing business in unpredictable times like the ones in which we now find ourselves. Now that we've learned a little about Luis's business, we're going to broaden things out a bit with the help of my colleague, Carlos Garcia, who is Sales Vice President for Allianz Trade in the Americas. So Carlos, tell me, what is your take on the impact of inflation, recession and all of these other risk factors we've been discussing?

00:12:27

Carlos Garcia: Well, in meeting with customers over the last six months, our customers are very, very concerned of what's coming, how inflation is affecting them. So they've had to increase their pricing to their customers so the volumes that are going out that they're shipping are extremely high now. So now more than ever, I'm meeting with more customers on a daily basis that are looking to ensure their receivables because now they can't afford to take that hit because the container that used to cost, to say a number, $ 50,000 to ship to Mexico is now costing over 150, 000 when they put it on the water. So if they get hit with that amount as a bad debt, it can be very detrimental to their business.

00:13:13

Alix McCabe: I bet. Luis had mentioned some supply chain issues as another risk factor. Are you hearing concerns about that as well?

00:13:20

Carlos Garcia: Yeah. The supply chain issue has been going on since 2020.

00:13:25

Alix McCabe:: Yeah, it's not new.

00:13:26

Carlos Garcia: It's something that the customers, I think, now have learned how to cope with, and I think even us as consumers have even learned how to cope with. But it looks like it's a way of the world.

00:13:38

Alix McCabe: Adjust your expectations.

00:13:39

Carlos Garcia: Exactly.

00:13:40

Alix McCabe: Your package is coming later than you thought.

00:13:42

Carlos Garcia: Exactly. You're not getting the Amazon Prime two days right away every time now.

00:13:47

Alix McCabe: No. Not every time. Okay. But you were saying that you are seeing these concerns with your clients and they've been around since 2020, so something that the market is adjusting to, I guess.

00:13:58

Carlos Garcia: Yeah. They're coping with it. I think the inflation and now this looming recession is the biggest drivers for them that they're focusing on now.

00:14:07

Alix McCabe:So if that's the case, what is the mood like among your clients? Are they in full on panic mode at this point?

00:14:12

Carlos Garcia: They're not on full on panic, but a lot of the customers that I'm meeting with, they're all saying the same line. They're all saying, "We want to get ahead of the curve. We want to make sure that we're insured," especially the ones that we speak to in the retail sector, they are panicking. They're the ones that are getting ready for what's to come if it does actually come. But now with the holidays behind us, we're excited to see those numbers because those numbers will dictate what position we're going to take, especially in the retail sector.

00:14:45

Alix McCabe: What's your outlook for the future, Carlos? Do you think the situation is going to improve? Do you have a crystal ball?

00:14:52

Carlos Garcia: Being here 15 years, I can tell you it always improves. It always will get better. But I think it's a great time to educate people about accounts receivables insurance. Everybody's willing to listen. It's something that a lot of people, believe it or not, don't know about with only 5% market penetration. So I think it's a great time for us as a company to be able to expand our outreach during these difficult times.

00:15:17

Alix McCabe: So given that, what can a business do to limit their exposure or weather the storm, so to speak?

00:15:22

Carlos Garcia: Well, like I tell my customers, the insurance is a secondary benefit of what you have. The number one benefit that you get when you buy credit insurance is the amount of information that we provide, whether it's, hey, we're deep in this industry, we know exactly what's going on, or hey, we know these buyers specifically, and we know what's happening with that buyer. We have their financials, we know their condition, and we can tell companies like Summar, "Hey, stay away from this customer because they're going through this situation," or, "Hey, you can go ahead and open the floodgates. You're dealing with a very good buyer and you can capitalize on your sales."

00:16:02

Alix McCabe: I see Luis nodding your head. So this is resonating with you, what Carlos is speaking about?

00:16:08

Luis Mondragon: Definitely. I mean, the way for us as a company selling non- recourse factoring to have the hand on the pulse of risk is through Allianz. That's how we work together. Because they have access to all that information, they will tell us, " I'm comfortable up to this limit." So we measure a risk based on the readings.

00:16:27

Carlos Garcia: And especially with a company like Summar, we have such a great relationship, our underwriters are not like the underwriters of any other insurance arm. Our underwriters actually speak to the folks over at Summar when either we don't agree on a limit or they want us to get some more information. So it's a give and take between both parties and an information flow between both parties to be able to find a happy medium when there is some type of discrepancy.

00:16:56

Alix McCabe: That's great to hear. Luis, how would you say that partnering with Allianz Trade has maybe benefited or impacted your business?

00:17:02

Luis Mondragon: Well, I mean, definitely it's a key part of our business because that's how we manage our risk. I mean, it's a financial company. Managing a risk is your key thing. It's where you go, where you don't go. If you don't have that hand on the pulse of risk, then you're putting yourself in a bad position. So for our customers, key message working with Allianz is taking risk out of the transaction. That's an element that differentiates us, and we can do it because we work together.

00:17:30

Alix McCabe:Taking risk out of the transaction.

00:17:32

Luis Mondragon: That's right.

00:17:33

Alix McCabe: In very risky times. That's pretty neat.

00:17:35

Luis Mondragon: That's exactly right.

00:17:39

Alix McCabe: I can't believe it. But we are approaching not just the end of this episode, but we're almost at the end of the entire season. So I would love to hear some final words of wisdom from both of you. I will start with Carlos. So Carlos, given the current confluence of crises affecting the world of business and trade, what advice would you offer to companies that are concerned about where we are and where we're going?

00:18:02

Carlos Garcia: Well, one of the biggest things that I advise everybody that I meet with is just give us a chance. Let us put something in front of you, let us review your buyers, let you know who's good, who's bad, what to look for, what not to look for, what are the risks. We have a lot of customers that sell COD, and it's really not COD, which is cash on delivery. And over the last six months in meeting with customers, this is something that I've opened their eyes to. So I urge everybody, just give us a chance. Let us meet with you, give you all the benefits of the accounts receivables insurance. We have an open door policy. You guys have access to speak directly to the underwriters, directly to the account managers, directly to the commercial underwriter. We're a very, very open door policy company.

00:18:55

Alix McCabe: Carlos, any final thoughts on the economy and the inflation situation that you'd like to share?

00:19:00

Carlos Garcia: Well, I think the inflation will eventually start to take a downturn, but for right now, it's still in this middle state where we don't know what's going to happen. So as long as it stays there, you have to be very, very vigilant and you can't afford to take a loss at these high prices that we're paying for things. So it's a huge problem, especially for companies that are exporting out of the US.

00:19:26

Alix McCabe: Thanks, Carlos. So Luis, what about you? For folks who are still perhaps anxious about what's to come, what would you tell them?

00:19:33

Luis Mondragon: I mean, I think it's not only companies. I think it's for everyone. If you cannot adjust, you'll die. If you adjust, you'll survive. Key thing for companies is that they need to be ready to respond to what the market is requiring from them today. And that always comes with investment, just adjusting themselves to be able to serve the new market that is created there. A lot of buyers lost their vendors and vendors are pretty hungry for orders. You need to look into who you're going to do business with. You need to make sure that you understand the company, the risk of doing business with that company. Evaluate the credit worthiness. It's always a challenge for foreign companies, so you have to rely on domestic partners to go through all that like Allianz and us. Don't run for those orders just because they're out there. Make sure that if you are going to be selling to somebody, that company is going to be able to pay for what you're sending and to pay them time so you can keep running your business. Mitigating risk by getting the right sources of finance and getting the right parachutes with credit insurance is key because you don't know exactly what's going to happen. So you're going to invest money the safest way possible. So take a look into this options so you can make the right decisions to survive.

00:20:49

Alix McCabe: Thank you so much. It's actually reassuring to hear that there are still some silver linings to focus on, even in times like these. So I really appreciate both of you sharing your experience with us here on Wheel of Risk. Luis, thank you.

00:21:00

Luis Mondragon: Thank you, Alix. It's been a pleasure.

00:21:01

Alix McCabe: And thanks also to my colleague Carlos Garcia. Carlos, it's been a pleasure as always.

00:21:06

Carlos Garcia: Thank you, Alix. You did a great job.

00:21:10

Alix McCabe: Now, this is normally where we'd ask our guest to spin the wheel to pick our next episode, but since this is our season finale, we're actually going to ask you, our listeners, for some help instead. We would love to hear your stories about the world of business and trade, good or bad, inspirational or scary. If your company has an interesting, uplifting, or even cautionary tale to tell, reach out to us on LinkedIn or online at Allianz-Trade.us/podcast and let us know about it, and maybe you'll end up on the wheel in our next season. Until then, I'm Alix McCabe, and this is Wheel of Risk, brought to you by Allianz Trade. Thanks so much for listening, and if you like what you heard or learned something useful, say so by giving us a review on your podcast platform of choice. Bye for now.