Keeping your head when those about you are losing theirs

Businesses throughtout the world are taking another long hard look at credit risk insurance – and not just for their policies.

Regardless of sector or standing, post credit crunch, uncertainty is a bigger part of business than ever before. Indeed, commercial opportunity and risk are inextricably linked – we can’t really have one without the other. But the threats are both real and present.  Buyer insolvency and/or default are at the focal point of our concerns in the West but add to that the heady mix of global economic instability, political interference, terrorism, war and natural disaster – all the things we see each time we switch on the TV at the moment - and the results are potentially catastrophic for a business of any size. Little wonder that credit insurance, frequently perceived as a rather dull “nice to have” is seeing changes in the way it is perceived and used around the world.

In a climate where diversification is key for many businesses to stay afloat, everyone hopes they won’t be the next casualty. And increasingly, before diversifying or exporting to new, lesser known markets, finance managers are looking to credit insurers for other information to secure their business as far as possible.

For example, the culture of payment practice is as diverse as that of music or food from country to country. Something which seems, at face value to be intrinsically simple can be like a foreign language. As 80% of Europe’s businesses already have some trade with emerging markets the need for more sophisticated market intelligence goes hand in hand with credit control. 

Recovering delayed or defaulted debts can be tough in established trade. But in new markets, it can be a significant challenge.  If you decide to recover a debt through Russian courts for example, you can expect to spend 330 days on it on average – and if that wasn’t enough, in India, it could take you 1,420 days – or almost four years.

Credit risk insurers hold data on millions of businesses around the globe and many finance directors are realising there’s no need to take the risk - their trade credit insurer has the information on legal systems, culture, trade customs, individual businesses, political systems and legislation in addition to a wealth of other data.

The cost of credit risk insurance remains comparatively low when weighed against the heightened risk environment and the potential cost to their business.  Factor in a risk climate where banks that have been trading for 150 years suddenly and devastatingly, go to the wall and businesses need to be better informed than ever.

Whilst few will disagree that trust is imperative to good business, information needs to become the strategic finance manager’s tool of choice. With a good credit management strategy, the smart business recognises that today’s lucrative but risky deal need not be tomorrow’s liability. The smart business realises not all risk is bad risk and that trade credit insurers can not only help determine this, they can also give businesses a range of the key information needed to make prudent decisions.