Global Banking & Finance Review discuss the benefits of Trade Credit Insurance with Holger Schaefer, Head of Region at Euler Hermes Asia Pacific.
Where do you see the gaps in trade credit risk protection in Asia Pacific?
The penetration rate of trade credit insurance for APAC is around 3 to 4%, compared to approximately 15% in Europe. Asia Pacific is a diverse region when it comes to trade credit risk management maturity level. We have more mature markets such as Australia, Singapore and Japan where most multinational and large sized companies are involved in some extent of trade credit risk management. Emerging markets such as Malaysia, Indonesia, Thailand and China lack overall level of trade credit risk management and most companies rely on self-insurance, which is an inefficient way of managing cashflow and an obstacle for growth. In general, the gap in APAC is the awareness of trade credit risk protection of small to medium enterprises (SMEs). A simplified product tailored to SMEs would address this gap and at Euler Hermes, we have developed a product specific for SMEs which is designed to reduce the time SMEs spend in managing customer debts so they could focus at what they do best – building their businesses.
What advice do you have for those that are considering Trade Credit Insurance but aren’t certain if it’s worth the investment? How can companies gain the most value from it?
In this volatile trading environment, a steady cash flow and proactive risk strategy are imperative for success. I highly urge companies to consider investing in the trade credit insurance. Trade debts can make up 40% or more of business assets. Just a few instances of failure to pay can make a big impact on your cash flow. The cost to a business of non-payment can be considerable. If you have a 5% profit margin and suffer a $100,000 debt, you’ll need to win new sales of $2 million to make up for the lost profits.
Plus, your financial position can be weakened by bad debts in other ways. For example, your cash flow will be affected and you will have less capacity for investment. Banks and finance providers could charge you higher interest. The morale of your employees may be affected if they become worried about their future in the business. Consider these effects and what they might cost when you think about the value you will gain from trade credit insurance.
There are many benefits to trade credit insurance. Below are some examples of benefits Euler Hermes provides to our customers:
- Use our information on limits and grades to improve credit control and defend against catastrophic bad-debt losses
- Demonstrate the enhanced quality of your accounts receivable when negotiating with lenders to access better terms
- Build our information into your sales planning to target the most financially sound new customers
- When developing strategy and business plans, identify the risks in new markets and opportunity areas with our data
- Access our debt collection capabilities and network to accelerate speed of payment. Aligning your processes with our systems will improve efficiency.
- Strengthen your cash flow by insuring invoices so that you are indemnified for non-payment.
What are some of the other ways Euler Hermes helps support business growth?
We provide other forms of credit insurance solutions such as surety, insurance financing, debt collection and digital partnership. For surety, Euler Hermes offers domestic and export bonds, customs bonds, performance bonds, advance payment bonds and maintenance bonds which are alternatives to bank bonds.
How is Euler Hermes positioned amidst the trade war tension and recent trade ban?
We understand that the uncertainties on US-China trade relations will trigger a global trade deceleration at +3.0% in 2019 compared with 3.8% in 2018 and +2.7% in 2020.We maintain our scenario of a significant deceleration of growth in 2019 (Asia to grow by 4.8 % y/y in 2019 against 6% y/y in 2018). The deceleration of global trade will add pressure on trade hub countries such as Taiwan, Singapore or Hong Kong. Emerging markets in Asia and Latin America will likely become the largest contributor to global imports growth in both 2019 and 2020. They will account for 55% of global trade, compared to 45% in 2017-18.
With more than 125 years of expertise, our global business intelligence is unrivalled. Our experts use technology-driven processes to generate insights and present actionable information to businesses of all sizes and in all sectors. Euler Hermes is well positioned in monitoring the situation and we are even trying to find hidden gems to bolster our customers’ portfolio. We actively develop different scenarios and offer our customers the most comprehensive solution which is relevant to their business.
What is Euler Hermes doing to stay ahead of competition and to address the needs of electronic/online trading?
By listening closely, we better understand our customers’ individual ambitions and hopes for their business. It’s all part of our truly customer-centric approach which inspires all areas of our organization – including product & services development, contracting, policy management and support. We have allocated resources in developing reliable and user-friendly digital solutions for our customers. One of the innovative digital products is the Single Invoice Cover, which offers a seamless process to provide convenience and efficiency to the most neglected business sector in invoice protection: SMEs. This particular tool is to provide protection at the invoice level instead of the whole turnover, so trade credit insurance becomes more flexible and affordable.