Managing Trade Risk
In Ireland, the number of insolvencies is decreasing but can we be conﬁ dent that this trend will continue?
This month, the Irish Broker Magazine speaks to Coface’s Commercial Manager, Alan Bryne about credit insurance and the risk of trade related bad debt for Irish businesses.
Doing business in Ireland isn’t always a smooth ride. No sooner has the economy bounced back from the ﬁnancial crisis, then Irish companies were hit by the uncertainity of Brexit. At the time of writing, we are still no wiser about the conditions for cross-border trade after Brexit. Nor do we know the extent of the impact on our trading partners in the UK.
Insolvencies in the UK are at their highest level since 2014 which will concern Irish businesses who are trading with the UK, as it increases the prospects of payment default. In addition to this, in Ireland there are worrying insolvency trends in key sectors.
Assessing Sector Risk
Construction related insolvencies was one of the worst hit sectors in Ireland representing 21% of the total number. The failure of the Sammon Group and associated companies perhaps epitomises how a ﬁnancial failure can contaminate the supply chain, as more than 400 creditors are estimated to have lost €18 million – many of which were small local ﬁrms who could ill-afford such a blow to their ﬁnances. When you combine this with the legacy issues still at play within the sector, and add cost inﬂation factors into the mix, then trade risk within this sector does need to be navigated.
However, insolvencies aren’t just restricted to the Construction sector. For the third year in a row the highest number of insolvencies was in the Services sector. Insolvencies were seen in Finance, Property related services, Advertising, Publishing, IT & Communications – illustrating the breadth of risk within this sector.
Retail also recorded an increase in insolvencies – most likely driven by increased costs, a shifting consumer preference and intense downward pressure in prices – particularly in fashion and grocery. And ﬁnally we have Manufacturing, which recorded a 28% increase in the number of insolvencies – a shift worthy of note.
As this brief overview shows, levels of sectoral risk tend to ﬂuctuate in line with factors such as the cost of raw materials, consumer demand, production capacity and conﬁdence. All of which can have an impact on payment default or insolvencies in a particular sector or market. So should your clients be worried about the prospect of late payment and default and the stability of their own supply chains?
How can you mitigate risk?
The truth is that no company is immune from the risk of bad debt and non-payment, or late payment, can cascade through a business network. However, insured businesses are better able to withstand and recover from an unexpected ﬁnancial shockwave, as a policy enables a company to claim back the money lost if a customer defaults or delays payment.
A credit insurer also provides companies with insight into the ﬁnancial health of individual customers – critical to trading safely as it enables ﬁnancial decision makers to be proactive and measured in reducing their exposure to payment default and customer insolvency. Overall an insured business is in a stronger position as they can focus their time and effort on ﬁnancially healthy customers, while their secured ﬁnance makes them more attractive for investors.
Of course, the beneﬁts of credit insurance can only be realised if you work with a reputable specialist – such as Coface – who are one of
the world’s leading credit insurers with over 70 years’ experience in supporting the development of trade. We have the resources to track the trading behaviour of over 80 million companies worldwide and make 10,000 underwriting decisions every day on behalf of our 50,000 clients.
“We want to protect ourselves from sudden shocks to the system. The cover provided by Coface is cost-effective, ﬂexible and the Terms and Conditions are right for us.” Origin Exterprises PLC.
As a broker, adding credit insurance to your commercial portfolio is a form of self-protection as it means your clients are protected from ﬁnancial shocks. It could also give you a competitive advantage because this is a relatively untapped market with plenty of opportunities to cross-sell and boost your revenue.
In addition, the management of a credit insurance policy promotes active client engagement – from requesting credit limits to monitoring credit risk. This regular contact will help you foster closer ties than other types of insurance, when clients might only be in touch at renewal time or when they need to make a claim.
Coface works hard to build strong partnerships with general brokers helping you manage your credit insurance portfolio and reap the rewards. For example, we help ringfence business from specialist credit insurance broking houses and can provide certiﬁed CPD training to help you comply with your obligations under the Minimum Competency Code.
In turbulent times, Coface Credit Insurance is a particularly valuable tool and we are already seeing more inquiries from companies in Ireland, who are keen to protect their debtor book and trade securely. You may ﬁnd that many of your clients feel the same way, so why don’t you join the Coface broker network and support your clients – as well as boost your own prospects.
Coface is authorised in France by the Autorité de Contrôle Prudentiel et de Résolution. In the UK Coface is subject to limited regulation by the Financial Conduct Authority and in Ireland Coface is regulated by the Central Bank of Ireland.