Weighing up the risks

“Free flowing financing is not a given in today's markets and may not be for some time. Taking care of the balance sheet and the cash flow statement are therefore essential to driving the business forward.”
-Andreas Tesch

In light of the recent financial crisis, in what ways have credit management solutions had to evolve in order to protect businesses of all sizes against the commercial and political risks inherent in domestic and global trade?

Andreas Tesch. The speed with which the financial crisis hit markets across the world meant that credit management solutions needed to move equally quickly. Decisions about buyer default risks needed to be fast and decisive. At the same time bank financing was in minimal supply for even profitable companies looking for additional support from their trade creditors. P&L information alone was not sufficient. Every bit of information became important as the dangers of payment default were now coming from all sides: trade sector, available funding, customer base (depending on one customer that was in trouble, etc.). As a result, forward looking rating tools, particularly those that take the financing element into account, have become more important since simply looking at past performance did not guarantee future success.

What opportunities are to be found in emerging markets, particularly in Central and Eastern Europe, Asia and the Americas with regards to credit insurance and credit management services? And what are the main challenges in these regions?

AT. These emerging markets have relatively low penetration rates and therefore represent attractive opportunities in respect to potential for new customers and with them new premium income. Once a local office is opened and a better understanding of the local risks can be realised this will also reduce the risk of payment default as risk assessment will be improved. This will lead to higher credit limit acceptance rates. For Atradius, it would also translate into an improved ability to service our customers on a truly global basis as they (our customers) expand their business into these markets.

Entering new markets also brings certain challenges including unfamiliarity with credit management services, less developed legal systems, poor information infrastructures, entrance barriers like licensing and capital requirements, and local business practices that are unfamiliar and may even seem corrupt but which are customary and standard business practices in the local market. Despite these challenges, if pursued cautiously, new markets can become important contributors to the premium and profit growth.

As business markets become increasingly globalised and international trade becomes ever more essential to effective business growth, what are the main credit risk challenges for global businesses and how should they be looking to overcome these challenges?

AT.  Just like the three most important considerations in real estate are location, location, location, for credit management those three considerations are information, information and information. You need to have as much information as possible to accurately assess the risks you will be facing. This includes developing a thorough understanding of local business cultures and habits. You can't think like a Western European or American business. You have to think like the local businesses to really be successful. Finally, you can't just think about the sale. You also have to consider getting paid. If payments are not made, you need to know in advance how you will recover them.

Now that we are in a period of recovery, how will those businesses that survived into 2010 have to adapt their business policies in order to make the shift from merely 'surviving' to 'thriving'?

AT. Right now sound financing has become a key element to business success. Free flowing financing is not a given in today's markets and may not be for some time. Taking care of the balance sheet and the cash flow statement are therefore essential to driving the business forward. This includes producing in a cost effective way. On the customer facing front however there remains no substitute for knowing your customers. If you know your markets and the companies you want to reach, you can bring the cost effective market approach by bringing the right products and services to the right potential customers through effective marketing channels and techniques.

Biography

Andreas Tesch, the Director for Global, Oceania and New Markets at Atradius, is
a leading global authority on trade credit insurance. He joined Atradius in 2001 in Corporate Development, subsequently becoming Director of Risk Services for Central and Eastern Europe (2004-2006). In 2007, he was promoted to his present role overseeing a team of 200 in 30 countries.