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What’s keeping credit managers awake at night?

Insurance Consulting and Technology

March 14, 2018

Six factors that are keeping credit managers up at night, are ensuring their company’s capital is protected, cash flows are maintained and earnings are secure.

With New Zealand’s exports back on an upward trajectory, the importance of trade credit insurance has come to the fore.

According to figures released by the International Trade Centre, New Zealand exported US$37 billion worth of goods around the world in 2017 – up 9.1% on the previous year – and accounting for nearly 20% of our gross domestic product.

It’s a significant and ging market – particularly for such products as dairy, meat, timber and fruit. Unsurprisingly, companies are concerned about how to manage the commercial and political risks of trade.

There are six factors that are keeping credit managers up at night, to ensure their company’s capital is protected, cash flows are maintained and earnings are secure – as well as helping organisations drive new customers and markets.

Our client base, which crosses a range of industries engaged in both domestic and export transactions, has given us insights into the main concerns.

  1. Late payments
    Insurers have reported a significant increase in the number of days that payment is outstanding throughout 2017 and this has continued into 2018. It places more pressure on credit managers to collect debts promptly and to address queries without delay. It should be noted that the February to April period is peak time for insolvencies.
  2. Risk assessment
    Whether through insolvency or other failure, the collapse of companies impacts business confidence and reinforces the importance of obtaining quality information and data as part of your regular client credit reviews.
  3. Higher risk industry sectors
    Some industry sectors have proven to be more challenging to collect debts from than others. Internationally, fresh fruit and vegetable wholesalers have often caused headaches for exporters. Data is key here. International trade often involves the selling of goods or services over extended periods of time, with countries that may have very different legal systems, cultures, environments and banking regulations.
  4. Protection of cash flow
    Companies need certainty of cash flow to continue to run effectively and not be unduly affected because of non-payment. Whether a customer becomes insolvent or defaults on payment, steps need to be taken to ensure working capital can be replaced. This is where the right trade credit policy becomes crucial.
  5. Developing the right customer relationships
    Continual risk assessment and monitoring helps develop the right customer relationships and can serve as an early warning sign for potential bad debts. Having the right risk framework and data insights can help you evaluate your customer’s financial health and your ability to collect payment for the products or services you’ve supplied.
  6. Improving relationships with bankers and access to finance
    Credit managers need to look at securing their debtors’ book. When debtors are insured, this can lead to enhanced relationships with banks and possibly more extensive credit facilities offered on more favourable terms. This allows access to the finance a company needs to g. There is no doubt that financiers are placing more focus on debtor quality.

All these points underline the need for the credit manager or department to focus on client risk assessments. It’s better to do the work at the outset, than spend time chasing a debt.

Having said that, credit insurance gives you the confidence to extend terms to new customers, offer increased payment terms to existing customers, and provides the ability to explore higher risk business opportunities that perhaps you may not have considered, for the fear of non-payment.

Trade credit is a crucial cover for all businesses to help them mitigate potential risks. It works especially well for trading with new customers, in high payment risk industries, or when selling in a volatile economic climate. It’s a unique product area, and you should look for a broker with a background in banking or credit management and time spent working for an underwriter. A specialist broker will be able to determine the best risk management strategies for your needs.

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