“You don’t know what you’ve got till it’s gone,” sang Joni Mitchell in her 1970 song Big Yellow Taxi. In the world of credit and finance, the economic downturn resembles the same vehicle: removing financial support that many businesses had come to assume would always be there.
The effect is two-fold. Businesses have found their customers unable to pay, and are often themselves unable to get trade credit from their banks to compensate for the lack of liquidity.
The global credit crisis has highlighted the role of credit insurance in stabilising trade. Some have even, mistakenly, blamed trade credit insurers for the demise of some of our well-known brands.
This points to a vital tool in the credit management armoury. Credit insurance, like any other insurance, is for protection. And like any other insurance, there are limits to what can be insured.
Credit insurers constantly review their risk portfolio and will withdraw cover on escalating risks. Yet the credit cover withdrawal amounts to a single-digit percentage focused on an even smaller proportion of companies, which means a number of withdrawn limits will apply to a single buyer.
We have maintained cover on 90 per cent of risks and write new business daily.
Credit insurers withdraw cover on buyers only as a last resort. And, if there
is a risk of cover being withdrawn, buyers can help themselves by keeping the lines
of communication open and sharing their most recent figures with their credit insurers.
It is clear that some people simply do not understand the role of the credit
insurer. And maybe we, the insurers, have some work to do in helping people to understand why we do the things we do.
But thanks to the credit crunch that will hopefully change. Insurers will see
that it is in their own interests to explain better what they do and why, and
politicians and media alike will find it fruitful to listen.
While credit insurers do not provide finance themselves, they can help a business secure trade credit when banks accept credit-insured receivables as a more secure asset.
And credit insurance is now, more than ever, a vital weapon against the global downturn, providing a safety net for insured sales that do not go to plan.
Our aim is always to help businesses manage risk, to concentrate on
profitable outlets for their products and services, and to trade safely in a
changing business environment.
Simon Groves is brand manager at Atradius
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