Trade credit insurance for risk protection for banks and
financial institutions by Robert Meters, Director Global Business, SCHUMANN.
Receivables financing is very important in stabilizing supply chains in the face of
current political and macroeconomic risks with relatively high inflation, commodity
prices and interest rates for developing business opportunities. Not only national
growth opportunities, but also opportunities for the expansion of international
business can be exploited with the rapid availability of liquidity.
By the end of 2022 open account receivables was estimated to be an industry
more than € 3 trillion of client turnover in an environment of global trade growth of
10% in 2022 according to WTO statistics. Various products and solutions are in
place to finance open accounts like asset-based lending, factoring, invoice
discounting, open account trading and supply chain finance. Non-recourse
factoring, for example, has developed to a level of 53% of the total global
factoring volume in 2022. The assumption of delcredere risk is a special task for
receivables financiers. Financiers are very well positioned to do this. An expected
increase in bad debts with anticipated rising insolvency of expected 19% in 2023
globally and thus default. The ability to assess the credit worthiness of buyers and
back that up with protection against bad debts is crucial.
The partnership with trade credit insurance is invaluable because the insurers
provide the ability to gain insight into companies that are not the customers of the
financiers, but of the corporates. Their credit information sources of credit insurers
are very extensive. Their analysis is a real complement to the work that
receivables financiers do. In addition, trade credit insurers protect them from bad
debts. Insurance is currently helping banks to use their capital more efficiently,
and this is important so that receivables financiers can offer the most competitive
prices to their customers. The question is how much banks can lend to the
economy and how trade credit insurance can support this under regulations from
Basel III and the eligibility and use of trade credit insurance as credit risk
mitigation.
It is crucial that liquidity is made available to expand the volume of business on the corporates side. The quality of the receivables and the business partners is decisive for the chances of prospering business. The impact on the overall economy is a strengthening of GDP growth and stabilization of investments in good and sustainable business.
Digitalization in credit risk management in global trade
Digitaliization is essential in the implementation of trade credit insurance processes. The debtors must be clearly reported to the insurers. The trade credit insurers determine the debit risks. The limit volume is made available to the financiers depending on the risk. These processes must be implemented digitally in the technical communication between financiers and trade credit insurances.
Through these digital processes, quick limit decisions can be made, allocated and monitored to thousands of financiers´ customers and buyers around the world. New business opportunities are thus emerging in online marketplaces and e- invoicing. Digital end-to-end processes using API links support limit requests and decision-making almost instantly and customers can receive decisions in minutes instead of days.
However, digital processes can go beyond the interfaces between financiers and trade credit insurances. Corporates who have their own digital credit risk management systems can be integrated into this technical solution with API interfaces. A true digital end-to-end solution of corporates, financiers and trade credit insurance will lead to a desired complete digitalization of receivables finance.
It goes without saying that trade credit insurances must have modern IT solutions in place for their core business. Investments in these solutions lead to considerable growth potential for all business partners involved.
An important effect is that when credit risk management solutions are available, the quality of the business partner portfolio increases, as corporates carry out their own risk assessments and monitoring, and this has a positive impact on financing options. Trade credit insurances can offer better risk-based pricing. As a result, these processes increase the efficient allocation of capital across all counterparties - corporates, financiers and trade credit insurances.
At trade credit insurances, securing obligations with digital processes lead to a safeguarding of the intended business relationship with financiers and their customers.
This vision is gradually being implemented by SCHUMANN in projects for trade credit insurances, receivables financiers and corporates. The effects are stunning and lead not only to the exploitation of business opportunities and growth of the business, but also to a transformation of business processes towards a true digital transformation in receivables finance and fast liquidity flows.
In times of increasing uncertainty with the influence of political and macroeconomic risks, fine-tuning between all business partners in the supply chains is essential. Rapid adjustments to the allocation of capital and insurance coverage lead to increased resilience of the economy. In this way, financiers and trade credit insurances can even expand their stabilizing and strengthening effect on the economy.
It is crucial that liquidity is made available to expand the volume of business on the corporates side. The quality of the receivables and the business partners is decisive for the chances of prospering business. The impact on the overall economy is a strengthening of GDP growth and stabilization of investments in good and sustainable business.
Digitalization in credit risk management in global trade
Digitaliization is essential in the implementation of trade credit insurance processes. The debtors must be clearly reported to the insurers. The trade credit insurers determine the debit risks. The limit volume is made available to the financiers depending on the risk. These processes must be implemented digitally in the technical communication between financiers and trade credit insurances.
Through these digital processes, quick limit decisions can be made, allocated and monitored to thousands of financiers´ customers and buyers around the world. New business opportunities are thus emerging in online marketplaces and e- invoicing. Digital end-to-end processes using API links support limit requests and decision-making almost instantly and customers can receive decisions in minutes instead of days.
However, digital processes can go beyond the interfaces between financiers and trade credit insurances. Corporates who have their own digital credit risk management systems can be integrated into this technical solution with API interfaces. A true digital end-to-end solution of corporates, financiers and trade credit insurance will lead to a desired complete digitalization of receivables finance.
It goes without saying that trade credit insurances must have modern IT solutions in place for their core business. Investments in these solutions lead to considerable growth potential for all business partners involved.
An important effect is that when credit risk management solutions are available, the quality of the business partner portfolio increases, as corporates carry out their own risk assessments and monitoring, and this has a positive impact on financing options. Trade credit insurances can offer better risk-based pricing. As a result, these processes increase the efficient allocation of capital across all counterparties - corporates, financiers and trade credit insurances.
At trade credit insurances, securing obligations with digital processes lead to a safeguarding of the intended business relationship with financiers and their customers.
This vision is gradually being implemented by SCHUMANN in projects for trade credit insurances, receivables financiers and corporates. The effects are stunning and lead not only to the exploitation of business opportunities and growth of the business, but also to a transformation of business processes towards a true digital transformation in receivables finance and fast liquidity flows.
In times of increasing uncertainty with the influence of political and macroeconomic risks, fine-tuning between all business partners in the supply chains is essential. Rapid adjustments to the allocation of capital and insurance coverage lead to increased resilience of the economy. In this way, financiers and trade credit insurances can even expand their stabilizing and strengthening effect on the economy.
Expansion of digital credit risk management through ESG risks
Another key factor influencing risk management are ESG risks to business partners in the supply chains. In addition to credit risks, ESG risks must be technically integrated into digital processes as separate review routines for business partners. In addition, ESG risks are also evaluated in relation to credit risks. Business partners who have high ESG risks will have to accept restrictions in their business life in the future. They will be excluded from supply chains as financiers and trade credit insurances will cut back business into risky industries and business partners, and re-financiers and reinsurance companies will withdraw. The impact is a higher default risk for business partners who have high ESG risks.
Digital end-to-end processes can ensure that all risk assessments relevant to business partners can be carried out, from the origin of the business with the corporates to the financiers to the trade credit insurances. Efficient audit routines in risk management are crucial in the digital economy. The impact on supply chains and business financing is significant.
Corporates, financiers and trade credit insurances need vision in order to be able to develop stable business relationships. The future lies in digital end-to-end processes on this journey with all business partners. Greater resilience of the global economy is the result of rapid risk-adjusted processes in a world of uncertainty.
SCHUMANN is the global partner for this transformation process and is anchored in all business areas with its risk management solutions. Talk to us. Scaling the business is our common goal.
Another key factor influencing risk management are ESG risks to business partners in the supply chains. In addition to credit risks, ESG risks must be technically integrated into digital processes as separate review routines for business partners. In addition, ESG risks are also evaluated in relation to credit risks. Business partners who have high ESG risks will have to accept restrictions in their business life in the future. They will be excluded from supply chains as financiers and trade credit insurances will cut back business into risky industries and business partners, and re-financiers and reinsurance companies will withdraw. The impact is a higher default risk for business partners who have high ESG risks.
Digital end-to-end processes can ensure that all risk assessments relevant to business partners can be carried out, from the origin of the business with the corporates to the financiers to the trade credit insurances. Efficient audit routines in risk management are crucial in the digital economy. The impact on supply chains and business financing is significant.
Corporates, financiers and trade credit insurances need vision in order to be able to develop stable business relationships. The future lies in digital end-to-end processes on this journey with all business partners. Greater resilience of the global economy is the result of rapid risk-adjusted processes in a world of uncertainty.
SCHUMANN is the global partner for this transformation process and is anchored in all business areas with its risk management solutions. Talk to us. Scaling the business is our common goal.
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