Many companies trade outside the borders of their own countries and this presents fresh challenges for credit managers, who are looking to make reliable credit risk decisions in a less familiar context. There are the obvious considerations relating to financial instability in parts of Europe, particularly in Greece at the moment, but a watchful eye not just on economics, but on the broader picture, is necessary to understand the international landscape from a credit risk perspective.
“Managing credit risk effectively is not just about looking at a particular client, but the companies within the group, the regions they are located in, the markets in which they trade, the executive management team and ultimately where ownership resides”, said Gary Grant, Group Credit Manager at Computers Unlimited. “This is particularly so for overseas trading. There’s a massive shift when you look at the risks that the company is engaging in both politically and economically. Each region has to be separately assessed for risk”.
Whilst in the UK the outlook is positive, with the results from the latest Chartered Institute of Credit Management Credit Managers’ Index for Q1 2015, showing renewed business confidence and an all-time index high, there are large parts of Europe that are still struggling to come out of the economic doldrums.
“It is prudent to watch the Eurozone”, Gary Grant continued. “One could easily make a mistake, see an apparent increase in trade and improve credit terms for a growing business, when the reality is that suppliers are aware of issues and have reduced their exposure, leaving you holding the majority risk. It can be difficult to reach reliable decisions, particularly if sufficient credible information is unavailable. It can result in a lack of confidence to continue trading with a customer or in a territory on the same terms and with the same levels of risk exposure”.
Stuart Hopewell, Credit Manager at Fujifilm, agrees: “The landscape has changed and everyone has become more cautious. We think the financial crisis is behind us, but businesses are still working with more subtle checks and balances. We now have better data analysis and this is helping us to be more confident about making decisions, which in turn leads to better credit lines and more flexibility”.
The need for credible, up-to-date information about customers is very apparent, and never more so than when trading overseas. It is crucial to determine the credit risk of companies operating in unfamiliar areas based on “on the ground” intelligence, so that an accurate picture can be built. The best way to do this is by using a software tool that synthesizes daily intelligence from global sources, and not just local.
“It is important that credit managers keep an ear to the ground, understand not just the customer, but the customer’s customer; how they manage their operations; where they intend to be in five years’ time and more broadly the risks attached to the markets they are currently involved in and those they are targeting in the future. Increasingly I believe that we will rely on credible intelligence and software solutions to optimise the credit/risk function. A good trading relationship with a customer is great, but is always best if presented with reliable data and analytical intelligence, which can therefore tell the full story”, commented Gary Grant.
Founded in 2000, Tinubu Square is a software vendor, leading expert in trade credit risk management. Tinubu Square enables organizations across the world to significantly reduce their exposure to risk, and their financial, operational and technical costs with best-in-class technology solutions and services.
Tinubu Square provides IT solutions and services to different businesses including credit insurers, receivables financing organizations, and multinational corporations.