Trade Credit Insurance

Challenges in Accounts Receivable Collections

Accounts Receivable Collections or
Why It's Harder to Collect Money Than to Sell a Product

We are witnesses to the long-term effects of global trade disputes, political uncertainties, social tensions, and global health crises, which have brought even the strongest companies to the brink of insolvency. The global economic recession of 2008 and the COVID-19 pandemic in 2020 illustrate how well-managed companies can be exposed to the risk of insolvency due to external factors. At the end of the year, one of the well-known European real estate companies - Signa, raised the white flag by filing for the restructuring of two of its branches. The development of the business in the real estate sector has been negatively affected in recent months by external factors that cornered a holding like Signa, which owes about a thousand companies, with high-profit projects and extensive sales capacities throughout Switzerland, Austria, and Germany, leading to the filing for bankruptcy.

For years, the real estate sector in Europe experienced a boom, as interest rates on loans were low, and demand was high. The dynamics of the market changed with the sudden rise in interest rates and costs, which led many real estate companies into illiquidity. What could we then say about other sectors?

Trade Credit Insurance

In today's unstable business environment, insolvency has become a looming threat that can affect companies of all sizes, especially considering operations during corporate crises. It's important to recognize that insolvency is not necessarily a result of poor management. Moreover, the insolvency of a key client or supplier can trigger a chain reaction within the business, potentially starting a domino effect. In this sense, some signs should be given more attention when it comes to assessing the creditworthiness of your company, your suppliers, or your clients:

• Decrease in profitability - Are your revenues declining, or are production costs increasing?
• Poor interest coverage ratio - Can operating profit cover interest expenses?
• Weakened balance sheet.
• Problems with cash flow and liquidity - Are fixed costs or interest obligations increasing? Do you have many unpaid debts by clients?
• Reduction in operating margins.
• Long-term liabilities, refinancing, and capital raising - Under what conditions can you refinance debt? Do you have access to capital markets or a line of credit?
• Orders: What will your business look like in the future?

How can trade credit insurance be of help to you? Trade credit insurance can be a lifesaver that protects your cash flow and minimizes damage from the credit risk to your company in case of bad debts.

As part of the operations of the insurance brokerage firm EuroSolutions, we are in a position to offer you a tool for protection against insolvency in the form of trade credit insurance policy. By contracting this type of insurance, you gain advantages which include:

• Proactive protection - Financial data analysis will facilitate the selection of the right clients and markets, reducing the risk of bad debts;
• Increased sales - Secured accounts receivable collections is an incentive for sales improvement;
• Market knowledge - Analysis of partners and the market will provide a condition for making more accurate decisions;
• Higher credit limit - With years of experience and global connectivity, and collaboration with reputable insurance companies, we are in a position to offer you better terms and higher credit limits.

According to the research by Atradius, the payment practices barometer in Eastern Europe is illustrated through the following figures:

  • A stable trend in B2B credit sales – currently, 45% of B2B sales are on credit.
  • The average payment terms granted to B2B clients have been reduced to 40 days from 42 days, compared to the previous year.
  • A 7% increase in delays in B2B invoices, affecting 46% of the total value of credit sales.
  • Cash flow problems are a significant factor in payment delays, leading to longer waiting times for payments.
  • High inflation continues to be a major concern, potentially affecting industrial activity.
  • A smaller number of companies expect an increase in profit margins, while the rest anticipate unchanged or reduced margins.

A quick response is crucial when it comes to identifying and addressing warning signs of insolvency. Insured accounts receivable collections (or collection of receivables) can significantly reduce the risk of client insolvency, protect your cash flow, and encourage the growth of your business. To minimize the risks of insolvency within your company, you might also consider implementing the following measures:

  • Diversify supply chains and avoid concentration in a single geographic area;
  • Assess the creditworthiness of clients before entering into contracts;
  • Maintain a balanced client portfolio to reduce dependence on a few key clients;
  • Ensure savings for emergencies;
  • Review credit terms and align them with industry standards;
  • Adapt to digital business to become more agile and adaptable;
  • Invest in trade credit insurance, including professionals to provide such services.

By implementing these preventive measures and utilizing the professional services that EuroSolutions is in a position to offer you, your business can successfully navigate through the complex field of insolvency risks and emerge stronger than ever before.