Q&A
Safer trading with Coface There are opportunities for UK businesses beyond the EU and BRICs One of the world’s leading credit insurers, Coface helps businesses of all sizes protect their domestic and overseas trade. In this interview, Coface Risk Underwriting Director UK and Ireland, Grant Williams, assesses the opportunities for UK exporters and gives his expert advice on managing the risk. Q The Governor of the Bank of England recently warned that "persistent headwinds continued to weigh on the UK economy” such as low productivity. How do you see the situation? A Coface in the UK has seen an increase in overdue payment notifications by our policyholders during Q1. Insolvency-related claims continued to fall so it’s likely that some companies are bolstering their cashflow position at the expense of their suppliers. The UK Government has pledged to tackle the issue of late payment but this is a perennial worry for exporters too and highlights the value of a credit insurance policy that covers protracted late payment, as well as customer insolvency. Q One of the top priorities for the new Government is to help boost exports and rebalance the economy. How does Coface assess the health of the Eurozone, which is still the UK’s main overseas market? A There have been more optimistic signals from central Europe with growth and confidence returning in France and Spain. However, the weakness of the euro against sterling is a continued hindrance for UK exporters to the Eurozone. Q Since the Eurozone crisis, UK exporters have been encouraged to explore new markets further afield, with a great deal of attention focusing on the BRICs. Is it time to move on? A Coface’s country risk assessments, which reflect the likelihood of payment default, highlight the real problems in these countries, with the exception of India. In the last year. Coface has placed China on our negative watchlist and downgraded Brazil where the short-term prospects of recovery look bleak. Meanwhile, the Russian economy is forecast to shrink in 2015 and Coface has downgraded our assessment of the business climate there because of the lack of corporate transparency and the complications associated with the implementation of sanctions last year. With the BRICs running out of steam, we’d encourage UK exporters to set their sights on the next tier of emerging markets. Inevitably four – Mexico, 2
Indonesia, Nigeria and Turkey – have been christened the ‘MINT’ countries but it would be a mistake to be constrained by a clever acronym. Last year, Coface identified more emerging countries with the potential for dynamic growth and a growing population of middle-class consumers, including Colombia, Peru, the Philippines and Sri Lanka. Q What about the other risk factors for exporters, such as business sector? A While there are good and bad businesses in every sector, we are closely monitoring the metal industry globally where demand is sluggish. By contrast, there has been a significant improvement in the automotive sector which is good for engineering firms that manufacturer specialist components. We also upgraded our assessment of the European chemical industry in April 2015 as production costs fell and the economic outlook improved. Remember that sector risks often vary from region to region. For an instant overview of key industries within Europe, North America and Emerging Asia, Coface’s ‘traffic light’ system is hard to beat (see below). Q Finally, what is your top tip for new exporters? A Any successful export venture starts with effective preparation: • Use reliable sources of information about risks associated with your chosen territory. Coface has access to a global database which tracks the trading behaviour of over 65 million companies, as well as
underwriters on the ground to monitor local trends. Our business climate assessments will highlight weaknesses in corporate governance and corporate law which could jeopardise the enforceability of your contract. • Know your customer: our credit opinions will enable you to evaluate the trading record and financial health of overseas customers and agents/partners, information which is not always readily available. • Safeguard your transactions with credit insurance so you can be confident of recovering the value of an insured bad debt. As well as whole turnover cover, it is possible to obtain cover for strategically important customers, political and specific short-term risks. • Establish a credit management process to monitor customer payment behaviour and ensure credit limit decisions are based on evidence rather than instinct. • Draw on the expertise of others. For example, your bank should be able to advise on the best way to mitigate against exchange rate fluctuations, while organisations such as UKTI and the British Exporters Association (www.bexa.co.uk) can advise on most aspects of doing business overseas. To find out how Coface can help your business to trade safely, contact us on 01923 478111 or visit www.cofaceuk.com