Stress Testing Your Company’s Balance Sheet

By Ron Doyle

In recent months European banks have been subjected to stress testing. The purpose of the testing is to determine if a bank’s capital can withstand a loss from a catastrophic event that is improbable, but possible, and will impair assets. It is surprising to realize that a relatively small impairment of assets can wipe out the capital of even banks that appear to be very solid.

What happens when a company applies a similar stress test to its balance sheet? In assessing the balance sheet of a company some areas to consider are:

• What percentage of total assets is represented by Accounts Receivable?
• What are the largest exposures to trade credit risk?
• How strong are the accounts with the large exposures?
• Could the company absorb the loss of one of these accounts? (remember: improbable, but possible)
• In Non-Current Assets section, what would be the impact if assets, such as mobile equipment, fixed investments in plant and equipment and even goodwill, had to be shown as impaired due to a political event outside of the control of the company?

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Global Economic Trade Issues Affect Diverse and Disparate Companies, Part one in a three Part Series: CONTAGION

By Ron Doyle

What does “contagion” mean in the context of trade credit insurance, the global economy and credit risk? Contagion is defined as a tendency to spread – as in the spreading of a harmful idea or practice.

The world financial news each day has many stories about different sectors of the economy: banking, mining, manufacturing, etc. When reading these items, it is often difficult to see how, or if, the problems in one geographic area or industrial sector will affect a seemingly unrelated company in another region.

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Credit insurance brokers improve performance and results by using yesterday’s progress as the zero point and aiming higher each day

By Rob Downey

Commercial airline passengers benefit everyday from flight crews who, by law, tradition and training, follow pre-flight checklists. My view is that the use of checklists to maintain high standards in the performance of important recurring team tasks should be studied in business schools.  What has this got to do with trade credit insurance, trade finance and the management of political risks?  ICBA USA uses a wide variety of lists in our global brokerage business to assist, educate, and guide ourselves as well as our global credit-insured clientele.

One of the most recent and striking confirmations of the efficacy of using lists as touchstones to guide high performance comes from the medical profession.  In case you have not heard it, I synopsize below the story of how empowered nurses armed with checklists in the Intensive Care Unit (ICU) at Johns Hopkins Medical Center managed to dramatically improve patient outcomes at what was already one of the world’s finest hospitals.

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Use General Craufurd's example to prepare for global trade risks

By Rob Downey

My partners normally ban the use of military or sports metaphors in explaining trade credit insurance.  They know that troubled trade transactions, defective coverage, and disputed obligations are more complicated than the black-and-white examples typically presented by wars and athletic contests.  Still, I believe the  world of global trade could use a Major-General Robert Craufurd about now.

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The Coface Group’s CEO discusses credit crisis effects – transparent financial information will ease trade credit

By Mark Attley

The big three global credit insurers Euler, Coface and Atradius continue to maintain their Investment Grade ratings despite the worst financial industry results in decades. At a recent meeting of the International Credit Brokers Alliance (ICBA) in London, England, Jérôme Cazes, CEO of The Coface Group, outlined his perspective on the current credit crisis and what we can expect over the coming year. Alliance members were treated to a blunt assessment of the present situation, which, if mirrored by the other two insurers, gives an indication of the scope of the challenges confronting the industry. Ironically, M. Cazes provided some hope and assurance that there is light at the end of the tunnel–versus a torch carried by the grim reaper of capitalism.

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