Spread of coronavirus results in cancellations or reductions of trade credit insurance limits
The reason is clear: the expectations for economic development in the near future are dismal. At the same time, in certain industries the demand for particular products is rising considerably. For one's own credit management this means there is a completely new risk situation. When making decisions about measures to be carried out it is especially helpful to be able to rely on the support of credit management software.
Many companies use the advantages of commercial credit insurance (CCI) to protect themselves against default on payments and to be able to offer their customers generous payment periods. A reduction of credit limits by the credit insurance company generally takes place when they have received new negative information about the customer. Another reason could be that the existing information about the customer is no longer up-to-date or is not sufficient for making a reliable estimation of the risk. Recently, however, there has been a further reason for insurance companies to cut CCI limits: the spread of the coronavirus has caused a worldwide collapse in demand and interruptions in global value-creation and supply chains.
Conversely, there are a few industries in which the demand for particular products is currently rising. Suppliers of building materials, for example, are experiencing a high demand for particular building products. Construction companies and tradesmen are stocking up on materials in order to ensure that they are able to fulfil future contracts. The reduction of limits in parallel to this is putting the building material suppliers under pressure: how much risk should one accept in order to do business?
Essential for credit managers: Portfolio management and early warning system
As a credit manager you have the task of assessing this new credit risk scenario. To evaluate the overall situation it is essential to know and understand your portfolio. Good credit management software such as CAM Industry & Trade offers the possibility to perform a detailed portfolio analysis that sheds light on questions such as the distribution of your customers across the rating classes or how many and which customers have commercial credit insurance lines and for what amounts. These analyses are available at the push of a button and thus provide the basis that is so important to you for making decisions.
A further very important tool in credit management is an early-warning system. Find out independently, and preferably before the reduction of credit limits by your insurance company, when payment delays or defaults threaten. With the integrated monitoring in credit management you can calmly rely on abnormalities being recognized at an early stage and reported to you immediately.
White paper: Potential uses and limits of trade credit insurance in credit management
