5 minute read
From crisis to opportunity: the future of B2B trade and credit management
From crisis to opportunity:
the future of B2B trade and credit management
By Mark Hoppe*
As we start to see the light after a tumultuous period of uncertainty, businesses are beginning to turn their attention to growth. These are the risks and opportunities CFOs and credit managers need to pay attention too.
Pandemic invoice write offs have more than doubled
The Atradius Payment Practices Barometer survey has revealed that an increase in the use of credit has led to a rise in write offs and overdue invoices with 5% of all credit sales written off as uncollectable more than doubling the 2% average recorded prior to the pandemic. The same story applies to late payments, 54% of business invoices are overdue (compared to 21% in the prepandemic year).
As the customer credit risk environment becomes more challenging with more businesses selling on credit, the insolvency environment is likely to increase. A write off rate of 5% represents significant loss. As businesses look to grow during this time of economic uncertainty, it’s important they continue to employ strategic credit management measures such as credit insurance to minimise the risk of payment defaults. This will help protect businesses from the increased risk of customer bankruptcy, help them manage the additional volume of late payments more efficiently and will also facilitate company growth by helping businesses explore new opportunities including extending more credit to existing customers and new customers and finding new markets to explore.
Tariffs continue to disrupt supply chains, so how are businesses managing budgets?
Atradius recently held a worldwide virtual event on The impact of trade relationships and tariffs on global trade and 43% of event survey respondents said tariffs had a slightly negative effect on their business. A further 42% of these business went on to alter their approach to budget planning, mainly reducing discretionary spending like travel and training, reducing capital expenditure and increasing the price of their products or services to counteract the tariff costs. One of the key drivers of the trend towards de-globalisation is protectionism and we expect trade relationships and tariffs to continue delivering shocks to businesses around the world. So the only thing that is certain is that uncertainty will continue. To reduce disruption and continue growing many businesses are looking to diversify supply chains and take advantage of the opportunities this can present to enter new markets and find new buyers. ➤
Businesses and markets who cannot match the speed of sustainability may be at risk
Governments are increasingly adopting climate change measures and consumers are both demanding and buying greener products. This trend was discussed in a white paper by Atradius on How COVID-19 changed global trade forever. It’s an area businesses need to be thinking about, if not already, as it’s likely we’ll see trade facilitation in exporting depend on this in order to reduce our carbon footprint. The B20 Group, the business voice of the G20, is discussing the idea that businesses have to work together and take responsibility for inequality and climate change. Governments and businesses have to collaborate and invest in technology in order to move into a more sustainable way of working. In addition, businesses are increasingly scrutinising their supply chains, and choosing to partner with suppliers that can provide better social and climate sustainability. Businesses and markets that do not have the agility to match the speed of the sustainable agenda may be at risk. For example, Japan is currently highly reliant on fossil fuels and is at risk of losing trade opportunities with large companies who are prepared to relocate in order to reduce their carbon footprints.
Digitalisation is changing the way we trust (and trade)
Information that shows a business, sector, or market is experiencing difficulties and could result in payment defaults is invaluable when it comes to assessing risk and taking decisions on whether to offer credit and, if credit is to be granted, on what terms. Credit management is already benefiting from automation, machine learning and artificial intelligence and will continue to grow in importance. Quantum computing, and new forms of massive data processing in real
time will also be huge according to the panel at a recent Atradius event on The impact of digitalisation on trade which you can watch on demand. The expert panel said we’ll be able to simulate fast and cheap versions of the world we’re in, and be able to track every aspect of a supply chain using sensors and connected networks at every step. These trends are already evident in freightforwarding start-ups who are building software systems that automate processes such as bills of lading and technology such as Robotic Process Automation, which is software designed to automate repetitive back-office digital tasks normally performed by people.
The panel also talked about how important trust is in this accelerated digital world we now find ourselves in. The power of digital trust has swung from the brand to the consumer. Businesses need to understand in real time what customers are thinking about your company, and how to connect experience data with operational data to create products, services and content that is meaningful. Businesses that do not actively engage with their customers online risk developing a “passive profile”, a profile that is almost always negative. The reason for this is that consumers are more likely to complain when standards have not been met, than they are to praise when standards have been. And the reality is that people will trust a strangers review online which can hurt your business growth.
The key to navigating and growing in this difficult economic environment is agility. An agile CFO or Credit Manager will continue to be across three key areas – the macro economic environment so you have information at hand when making decisions about importing or exporting. The dynamic of your own market and your products or services followed by assessing the credit risks of your customers. Knowing everything about the customer is something you need to do on an ongoing basis not just at the beginning. Partnering with a credit insurance company like Atradius can help you manage credit risks, gain key insights and outsource the debt collection process, saving you time and providing you with valuable knowledge to continue to grow by taking smart risks.
*Mark Hoppe Managing Director Atradius Oceania Tel: (02) 9201 5222 www.atradius.com.au
