Leading credit risk specialist, Atradius, has issued guidelines for UK businesses exposed to current fluctuations in the global economies to help protect their credit sales. The threats are posed by a combination of heavy stock market falls around the world, a crisis in the US sub-prime lending market, currency weakness in Asia and beyond and generally weaker credit markets. This has prompted questions about US economic health going forward.
Key threats include:
- Higher inflation; but the flip side could be lower interest rates.
- Tighter credit conditions – not only from customers but also from banks and other lenders.
- Currency fluctuation could lead to companies losing money on overseas trades.
- Increased incidence of non-payment by suppliers, particularly if their businesses are heavily exposed to the affected markets and/or sectors.
Shaun Purrington, UK manager at Atradius, says: “Mohammed El-Erian, former International Monetary Fund official, is urging businesses across the globe to keep watch for signs of international credit rationing. For UK businesses, there are a few big questions. Will the crisis in the US sub prime lending market make their way across to Europe
- What effect will this have on the UK credit market and ultimately UK trade
- And what practical measures can be put in place to protect businesses from the worst of the fallout
- This is what our guidelines aim to provide.”
To weather the storm, the Atradius guidelines advise businesses to:
- Monitor export customers carefully, particularly those operating in Asia and the emerging markets.
- Ensure protection is in place for these customers: credit check and credit insure.
- Consider credit insurance as a reputation builder for your business: lenders tend to be more comfortable maintaining and extending credit terms to companies that are insured against bad debt.
- Consider protecting against exchange rate fluctuations if you are operating in the most volatile areas.
- Ensure invoices are chased promptly and payment secured on time; maintaining good cashflow is vital.
- Credit management and collections procedures need to be in place for when debts look shaky.
- Embrace opportunity; global shifts could mean overseas suppliers cannot serve their own foreign markets, leaving the way open for others to step in.
- Consider looking at your competitors’ overseas customer base and target companies that they might be less confident with, secure in the knowledge that your credit management disciplines and risk protection will provide you with the security to move into new markets.
Atradius has access to credit information on 45mn companies worldwide and makes more than 12,000 credit limit decisions daily. It provides a wide range of products and services to help companies protect themselves against the impact of bad debt in the face of varying market conditions and recovery unpaid monies both at home and around the world.