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John Blackwell: Many players are expanding their approach to hunt for customers

Turbulent times mean businesses must make sure they trade safely. For over 100 years, trade credit insurance has quietly supported business growth, enabling trade, researching and supporting business with new markets and helping to establish trade links throughout the world.

Providing sellers with protection against the failure of a buyer to pay does appear to help sell more products and services and stimulate economic growth.
Insurance has become essential to our lives, providing security when we access the products and services we want. For businesses, trade credit insurance has enabled rapid, more secure growth.
In the 1990s, consolidation was one of the driving forces in the development of the credit insurance industry. That resulted in domination of today’s industry by three international credit insurers.

Between them, this trio accounts for about 85 per cent of credit insurance premiums globally. This worldwide consolidation shows why credit insurance is valuable.
Recent months have shown just how global the economy has become. Not only can no market operate in isolation, but it is simply not enough for many businesses to transact business locally or even domestically.

Survival, for many players, means looking for opportunities outside their traditional comfort zones; many players are now expanding their approach to hunt for customers in new industries or territories.
Doing so, however, ups the risk. Cash sales would be ideal, but with competitors trading on credit terms businesses need to offer good payment terms as well to stay competitive.

At the same time, the buyers may be new and those new customers’ creditworthiness may be difficult to ascertain.
If such new customers decide not to pay, collecting on foreign receivables can be long and painful.

On top of the commercial risk ­ depending on the country of operation ­ businesses may be exposed to unanticipated political risks.
Despite around 20 years of a reasonably benign political risk environment, the landscape appears to be shifting and global political instability is expected to climb.

This can and in many cases will affect the security of your receivables in those markets where the lack of a stable political environment can change the ability of a buyer to pay or the payment practices of the buyer.
To do business internationally, determine which companies you should and should not do business with. Pick the winners and you win, pick the losers and you may go out of business even before they do.
But credit insurance is not just about knowing that someone is going to pay up. Smart businesses are in the game to learn something.

With information on hundreds of millions of businesses right around the globe, updated daily, the global trade credit insurers often know the risks of dealing with a business before the business knows itself. And if you hold a trade credit policy against one of your purchasers, your insurer will flag any problems or trade risks with that business so you can take appropriate action, perhaps suspending trade or not shipping goods for which you may not get paid.

The consolidation of the credit insurance industry reflects a drive to build these worldwide operating platforms in response to globalisation.

Globalisation is also making compliance more complicated and expensive. We think trade credit insurance has become a “must have” when protecting against defaults stemming from commercial and political risk.

John Blackwell is senior communications manager at insurance company Atradius.