Excerpt from ICBA Advantage Issue 1

In this interview, Christopher Short, Senior Vice president for Coface North America, discusses the current economy and the rising importance of trade credit insurance. Coface’s mission is to facilitate global trade by informing and protecting clients against trade risks. Like all ICBA partners and members, Coface’s strategy is underpinned by a local presence and high-quality customer service.

Question: Quoting from a Coface news piece, “The payment defaults index rose 36% during January-September 2008, compared with the same period in 2007.” How is Coface helping existing and new customers remain healthy in this crisis?

Christopher Short: In risky economies with more uncertainty between trade partners, credit insurers like Coface are on-call to protect their clients. Many businesses – small or multinational – don’t have the tools or depth of knowledge to monitor risk in a volatile economy. Our expertise works like an early warning system. During the current critical period, Coface underwriters and agents are spending larger amounts of time serving and consulting with new and existing customers. We are more visible in the marketplace because that’s what our customers require. Business is facing new challenges in this economy and many are relying heavily on the experience of established trade credit insurance programs and on strong business-customer relationships. Also, banks are more likely to lend to companies that protects receivables with credit insurance.

We are also seeing an interest in trade receivable financing – when a financial institution purchases receivables outright – as a way for companies to get financing while avoiding non-payment risk. If financing is not required, the best option is credit insurance. With credit insurance, the insurer pays out when the purchaser defaults. Coface also serves as a collection agency – collecting on payments as early as one day past due.

Question: According to Bloomberg.com, letters of credit (LoC) are roaring back into fashion as sellers seek guaranteed payments from buyers they no longer trust, yet banks are increasing LoC charges. When 90% of the US$ 13.6 trillion of goods traded worldwide relies on financing, where does trade credit insurance fit into this mix?

Christopher Short: Interest in credit insurance always rises in riskier times. That interest is now stronger than ever before. LoCs are not customer friendly because costs are born by the purchaser and money needs to be paid up-front. In some cases, trade credit insurance is a better protection strategy for the supplier. Credit insurance is not restricted to a specific payment term, and it solves a company’s need to protect its total receivables in uncertain times. A strategic business manager plans for downturns and insures when times are fine so when times turn risky, protections and relationships are in place.

Interest in trade credit insurance at Coface North America has nearly doubled from what it was at this time last year. Business people are seeing losses worldwide and want to better understand what is happening and how they can protect their business fast. All ICBA-affiliated insurers are critical information providers with a vital role in the business cycle.

(Excerpt from ICBA Advantage - The newsletter for trade credit insurance solutions - Issue 1. © 2008 International Credit Brokers Alliance (ICBA )www.icba-online.com. Company and product names are trademarks of their respective companies.)