THANKSTO
ShanAboo
KarolLeszczynski
NeilShonhard
DorotaSzcześniak
TFGEDITORIAL& MARKETINGTEAM
CarterHoffman
DuyguKarakuzu
KirtanaMahendran
DeepeshPatel
LAYOUTDESIGN
NigelTeoh
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Introduction
Creditinsuranceandfactoringarecrucialfinancialtools thatprovidebusinesseswiththestabilitytonavigateuncertain markets.Thesetoolshelpmitigaterisksandenhanceliquidity, especiallyininternationaltrade,wheremacroeconomic volatilityandcomplexenvironmentsarecommon.
AtFCI’s56thAnnualMeetinginSeoul,apanelofexperts discussedtheintricaterelationshipbetweencreditinsurance andfactoring.Thepanelincluded:
ChiefCommercialOfficer forAsiaPacific AllianzTrade
ChiefExecutiveOfficer MonetaGo
MemberofFCIExecutive CommitteeandSupplyChain FinanceCommittee SantanderFactoring
ProductManager Comarch
ShanAboo
NeilShonhard
DorotaSzcześniak KarolLeszczynski
Exploringthesymbiotic relationshipbetween factoringandcreditinsurance 1
Creditinsuranceandfactoring aretwofinancialtoolsthatwork intandemtomitigaterisksand enhancebusinessliquidity.
Theirsymbioticrelationshipis crucialinprovidingbusinesses withthestabilityneededto navigatetheuncertaintiesof internationaltrade.
AccordingtoFCI,“International factoringistheprocessof purchasinganinvoicefrom anexporterinonecountry andcollectingitlaterfromtheir
buyer/importerlocated inanothercountry.The exporterreceivespayment upfrontfromthefactorby wayofadiscountagainst theinvoice,andthesource ofrepaymentcomesfrom theproceedspaidbythe buyer/importeratthe duedateoftheinvoice.”
Creditinsurance,on theotherhand,protects businessesagainsttherisk ofnon-paymentbybuyers.It coversthereceivables,ensuring thatevenifabuyerdefaults, thebusinesswillstillreceive payment,eitherpartiallyorfully
Thisinsuranceisparticularly valuableininternationaltrade, wheretheriskofdefaultcanbe higherduetovolatileeconomic conditions,politicalrisks,and otherfactors
Forbusinesses,credit insurancebothmitigatesrisk andenhancesliquidity.By convertingreceivablesinto immediatecash,companies canimprovetheircashflow andfinancialstability Thisis particularlyimportantfor businesseswithlimited paymentrecordsorthose operatingininternational markets
Creditinsurancegives prospectivetradersthe confidencetoengagewithnew buyersandenternewmarkets, knowingtheyareprotected againstpotentiallosses
Howtheycomplementeachother 1.2
Therelationshipbetweencreditinsuranceandfactoringissymbio becausetheycomplementeachotherinseveralways.Theseinclu
Riskmitigation:
Creditinsurancemitigatestheriskforfactorsby providingcoverageagainstnon-payment,making factoringmoresecureandattractivetobusinesses. Factorscanconfidentlypurchasereceivables, knowingtheyareprotectedagainstbuyerdefaults.
Enhancedliquidity:
Byconvertingreceivablesintoimmediatecash, factoringimprovesabusiness’scashflow Credit insurancefurtherenhancesthisbyproviding additionalsecurity,whichcanleadtohigher advanceratesfromfactors.
Marketexpansion:
Forbusinesseslookingtoenternewmarkets,credit insuranceprovidestheconfidenceneededtoengage withnewbuyers Itoffersprotectionagainstunfamiliar risks,encouragingbusinessestoexpandinternationally.
Dataandinsights:
Creditinsurershaveextensivedatabasesand analyticaltoolstoassessthecreditworthinessof buyers Thisinformationisvaluableforfactors,helping themmakeinformeddecisionsaboutpurchasing
Thepanellistshighlightedthese benefitsduringtheFCI’s56th AnnualMeetinginSeoul Aboo said,“Creditinsuranceprovides asafetynetbyprotecting companiesagainsttheriskof non-payment,makingthe factoringprocessmoresecure andappealing.”
Practical applications 1.3
Inpractice,therelationship betweenfactoringandcredit insuranceinvolvesclose cooperationbetweenfactors andinsurers Factorsrelyon insurers'dataandinsightsto assesstheriskofreceivables, andinsurers,inturn,benefit fromthebusinessgenerated throughfactoring.
InPoland,forexample,50% offactoringagreementsare coveredbycreditinsurance, thoughoverallpenetrationrate oftradecreditinsuranceis relativelylow.Szcześniaksaid, “Creditinsuranceisavery importantpartnerin ourbusiness,especiallyin internationalmarketswherewe havelimitedaccesstoforeign lawyersandfinancialdata.”
Challengesinthecurrentmarket 2
Despitetheclearbenefits,integratingcreditinsuranceandfactoring presentsseveralchallenges.Theseincludepoorinformationflow, cumbersomeonboardingprocesses,andhighpremiums.
Effectiveinformationflow isfundamentalforcredit insuranceandfactoring Creditinsurersneedaccurate andtimelydatatoassessthe creditworthinessofbuyerswhile factoringcompaniesrelyon thisinformationtomake
informeddecisionsabout purchasingreceivables
Oneofthesignificantissues facingthecurrentmarketisthe poorflowofinformation often usingantiquatedmethods betweeninsurersandfactors Shonhardsaid,“Cooperation betweeninsurancecompanies andfactoringcompanies usuallyinvolvesexchanging informationthroughemail, whichleadstodelays.”
Whenfactoringcompanies sendproposalstoinsurers forgrantinglimits,theyoften havetowaitseveraldays foraresponse.Inamodern businessenvironment,delays canbedetrimental,especially forbusinessesthatrequire quickaccesstofunds
Thedelayindecision-making isfurthercompoundedby thelackofreal-timedata exchangesystems.Without real-timeinformation,insurers andfactorscannotmakequick decisions,whicharecritical inmaintainingacompetitive edge Szcześniaknoted,"Our customersarenotpatient,and thecompetitionisaggressive. Thetimewedeliverthe decisionastothelimitisreally critical."
Thisimpatienceisnot unwarranted,asbusinesses needtimelyfinancialsupport tomanagetheiroperations, seizeopportunities,and mitigaterisks.
2.2
Cumbersome onboarding
Obtainingcreditinsurance canbecumbersomeand time-consuming,which,in someinstances,discourages businessesfrompursuing italtogether
Szcześniaksaid,“The onboardingprocessfor obtainingcreditinsurance isoftencumbersome,with businesseshavingtoprovide extensivedocumentation.”
Businessesandfactoring companiesmustfollow extensiveprocedures andprovidesignificant documentation,financial
information,credithistories, whichcreatesasubstantial administrativeburdenand slowsdowntheentireprocess
Smallerbusinesses,which mightnothavededicated teamstohandleintricate paperwork,oftenfind themselvesoverwhelmedby
thedemandsofthe onboardingprocess.
Thisextensivedocumentation andthoroughassessment requireconsiderabletimeand effortandcanstrainthelimited resourcesofsmallerfirms, makingtheprocessseem insurmountable.
Highpremiums
Highcreditinsurance premiumsposeachallenge insomemarketsandforsome customers,creatingabarrier fornewentrants.
Inmanyemergingmarkets, economicinstabilityandhigher perceivedrisksleadinsurersto chargemoretocoverpotential losses Aboonoted,“Inmarkets likeIndia…thecostofcredit insurancecanbeprohibitive, limitingitsavailabilityin regionswhereitismost needed.”
Thismakesitdifficultfor businessesintheseareasto affordthenecessarycoverage, limitingtheirabilitytoengage ininternationaltradeand expandtheiroperations Shonhardadded,“Inemerging markets,theriskofeconomic instabilitymakesinsurers cautiousaboutextending coverage,whichlimitsthe availabilityofcreditinsurance.”
Regulatoryfactorsadd anotherlayerofcomplexity Insomeregions,stringent regulationsandtheneedfor comprehensivecompliance maydriveupthecostof offeringinsurance,whichis thenpassedontobusinesses throughhigherpremiums
Additionally,insufficient informationaboutbuyers' creditworthinessincreases insurers'risk.Whenthereis limitedaccesstoreliabledata, insurersmustaccountfor thisuncertaintybyraising premiumstoprotectagainst potentialdefaults Thiscan bedetrimentalforstartups orbusinessesthathave historicallyoperatedthrough theinformaleconomyand, therefore,lackformaldata trails
Technologicaladvancements asenablers 3
Technologicaladvancementsofferpromisingsolutionstomanychallenges thecreditinsuranceandfactoringindustriesface.Automationand digitisationcanenhanceefficiencyandstreamlineprocesses,while centraliseddatarepositoriescanhelpwithriskassessments.
Automationanddigitalisation willhaveamajorimpacton creditinsuranceandfactoring.
Byintegratingtechnologies suchasapplication programminginterfaces(APIs) andartificialintelligence(AI), theseindustriescanstreamline processes,reducedelays,and improvedecision-making.
exchangebetweeninsurersand factoringcompanies,leading toquickerandmoreaccurate decisions Thisreducesthe relianceonmanualprocesses andmitigatesthedelays associatedwithtraditional methodslikeemailexchanges.
Shonhardsaid,“AIand machinelearningcanenhance theunderwritingprocessby providingdeeperinsights intobuyerbehaviourand creditworthiness.”
Thesetechnologiescananalyse vastamountsofdataquickly andaccurately,identifying patternsandrisksthathuman analystsmightmiss.
Overall,automationand digitalisationcandrivegreater adoptionofcreditinsurance andfactoringbycreating amoretransparent,efficient, andinformedmarket environment.Aboosaid,“They cansignificantlyimprovethe efficiencyofcreditinsurance andfactoring”
Blockchaintechnologyisalso gainingtractionasatoolfor enhancingtransparency andsecurityintradefinance transactions Byprovidingan immutableanddecentralised ledgeroftransactions, blockchaincanhelpmeet regulatoryrequirementsfor transparencyandtraceability. Italsoreducestheriskoffraud anderrors,whicharecritical concernsforregulatorsand industryparticipants
Centraliseddatarepositories andcollateralregistriesare othermeansofimproving transparencyandtrustin themarket
Centraliseddatarepositories serveascomprehensive databasesthatconsolidate financialandcredit informationaboutbuyers. Theserepositoriesgatherdata fromvarioussources,including
banks,creditinsurers,andother financialinstitutions,tocreate aunifiedplatformofreliable andup-to-dateinformation
Collateralregistriesarepublic databasesthatrecordsecurity interestsinmovableassets, suchasreceivables,inventory, andequipment Once established,theycanprovide comprehensiveinformation aboutbuyers'credithistories andpaymentbehaviours, allowingforbetterrisk assessmentandmore informeddecisions
Thesecloselyrelatedtools areparticularlybeneficialin
emergingmarkets,where accesstoreliabledatais oftenlimited
Leszczynskisaid,“Centralised datarepositoriesandcollateral registriescanplayacrucial roleinimprovingtransparency andtrustinthemarket.”
Iffurthercollateralregistries canbedeveloped,especiallyin emergingmarkets,itcouldbea keysteptoenabletradecredit insurerstoengagefurtherin factoringandtradefinance.
Casestudy:Germany 4
Germanyrepresentsamaturecooperationwithcreditinsuranceand factoring,with95%offactoringcoveredbyinsurance.Thewidespread useofthesefinancialtoolsinGermanyprovidesvaluableinsightsinto bestpracticesandsuccessfulintegrationstrategies.
Implementation andbenefits
InGermany,theintegrationof creditinsurancewithfactoring hasbeendrivenbyastrong focusonriskmanagement andfinancialstability German businesses,particularlylarge corporations,extensivelyuse creditinsurancetomitigate non-paymentriskand enhancetheirfinancialsecurity.
Afavourableregulatory environmentandthe availabilityoftailoredinsurance solutionshavealsosupported thehighpenetrationrateof creditinsuranceinGermany. Thesefactorshavemade iteasierforbusinessesto accesscreditinsurance andincorporateitintotheir factoringagreements.
Challengesand solutions
Despitethehighpenetration rate,Germanbusinessesface challengesrelatedtothe complexityofmanaginglarge volumesofreceivablesand theneedforefficientdata exchange Toaddressthese challenges,Germanfinancial institutionshaveinvested heavilyintechnology.
4.1
4.2
Forexample,using centraliseddatarepositories andadvanceddataanalytics hasenabledGerman businessestomanagetheir receivablesmoreeffectively andmakeinformeddecisions. Thesetechnologieshavealso improvedtransparencyand trustinthemarket,making iteasierforbusinessesto engageininternationaltrade.
Educationandawareness:
TheexperiencesinGermany highlightseveralkeylessons fortheintegrationofcredit insuranceandfactoring:
Technologyadoption:
Increasingawarenessandunderstandingofthe benefitsofcreditinsuranceiscrucialforimproving adoptionrates Educationalcampaignsandoutreach programscanhelpbusinessesrecognisethevalueof thesefinancialtools Investingintechnologyisessentialforimprovingthe efficiencyandeffectivenessofcreditinsuranceand factoring.APIs,AI,andcentraliseddatarepositories canfacilitatereal-timedataexchangeandenhance decision-makingprocesses
Customisedsolutions:
Offeringtailoredinsurancesolutionsthataddressthe specificneedsofdifferentmarketscandrivegreater adoption.Insurersshouldconsidertheuniquerisksand requirementsofvarioussectorsandregionswhen developingtheirpolicies
Theimpactofregulatorychanges 5
Thefutureoffactoringandcreditinsuranceiscloselyintertwinedwith regulatorychangespoisedtochangetheindustry.Asthesefinancialtools becomemoreintegraltoglobaltradeandfinance,regulatoryframeworkswill continuetoevolve,impactinghowbusinessesandfinancialinstitutionsoperate.
5.1
Oneofthemostinfluential regulatorychangesaffecting factoringandcreditinsurance istheimplementation ofBaselIIIregulations. Theseinternationalbanking regulationsaimtostrengthen bankcapitalrequirements byincreasingliquidityand decreasingleverage For factoringandcreditinsurance, theseregulationsbringboth challengesandopportunities.
UnderBaselIIIandIV,banks mustholdmorecapital againsttheirassets,including receivablesandtradefinance instruments,whichhas implicationsfortheavailability andcostofcredit.Factoring companies,whichrelyon purchasingreceivables frombusinesses,willneed tonavigatethesestricter capitalrequirements
Creditinsurancecanplaya crucialroleherebymitigating
theperceivedrisk associatedwithreceivables, potentiallyallowingbanks andfactorstomaintainor evenincreasetheirfinancing levelsdespitehighercapital requirements.
Aboosaid,“Our[policy] wordingsneedtobe consistentlyadjustedasthe BaselIIIregulationschange tomakesurethatwekeep upfromaninternalcapital reliefpointofview.”
Regulatorychangesare alsodrivingenhancedrisk managementstandards. Financialinstitutionsare increasinglyrequiredtoadopt robustriskassessmentand mitigationstrategies For thefactoringindustry,this meansincorporatingmore comprehensiveduediligence processesandleveraging advancedanalyticaltoolsto assessthecreditworthiness ofclients
Creditinsurersaresimilarly affected.Tocomplywith regulatoryexpectations, theymustprovidemore detailedandtransparent riskassessments Thistrendis pushingtheindustrytowards greatertechnologyintegration, suchasAIandmachine learning,toenhancethe accuracyandefficiency ofriskevaluations
andopportunities Onone hand,thelackofstringent regulationscancreatea moreflexibleenvironmentfor innovationandgrowth.On theotherhand,theabsence ofrobustregulatoryoversight canleadtohigherrisksand lowerinvestorconfidence
developmentagenciescan helpgrowcreditinsurance andfactoringinemerging markets.”Theseorganisations canprovidethenecessary infrastructureandfinancial supporttoencourage adoption
Regulatorychangeswill haveapronouncedimpacton emergingmarkets,wherethe adoptionoffactoringandcredit insuranceisstillgrowing In manydevelopingeconomies, regulatoryframeworksareless mature,posingbothchallenges
Multilateralbanksand developmentagencies areworkingtoaddressthese challengesbyadvocatingfor regulatoryreformsthatsupport thegrowthoffactoringand creditinsurance.Shonhard said,“Leveragingthesupport ofmultilateralbanksand
Initiativessuchasestablishing collateralregistriesand paymentrepositoriesaimto enhancetransparencyand reducerisksinthesemarkets Theseeffortsarecrucialfor creatingastableand attractiveenvironmentfor factoringandcreditinsurance tothriveinemergingmarkets.
Impacton
Nextsteps:Buildingaresilient financialecosystem 6
Integratingcreditinsuranceandfactoringcan enhancefinancialresilienceandstabilityinglobal trade.Thispartnershipmitigatesrisks,improves liquidity,andenablesbusinessestonavigate complexinternationalmarketsconfidently.
Todrivegreateradoptionofcreditinsuranceand factoring,stakeholdersmustimplementstrategic initiativesthatfostercooperation,education,and innovation.
Whilesignificantprogress hasbeenmadeindeveloping andadoptingnewtechnologies withinthefactoringandcredit insuranceindustries,more collaborationisneeded tocreateasuccessful environment.
Szcześniaksaid, “Bettercooperationand communicationbetween financialinstitutions,insurers, andtechnologyprovidersare essentialforimprovingmarket penetrationandefficiency.”
Byworkingtogether, stakeholderscandevelop integratedsolutionsthat streamlineprocessesand reducefrictioninthecustomer journey,creatingamore resilientanddynamicfinancial ecosystemthatsupports businessesineverycorner oftheworld
Ed 6.2
Education factoring willencou engagem financialt “Manybu oftheben insurance
Education outreach essential abouthow enhance andgrow
Enhanced adoption, managem smoother educating howcredi factoring theybring overcome buildtrust reach,esp markets
Conclusion
Integratingcreditinsuranceandfactoringismore financialstrategy;itisapathwaytobuildingares dynamicfinancialecosystem.
Byaddressingexistingchallenges,leveragingtec advancements,andimplementingstrategicinitia stakeholderscansupportbusinessesineverycor worldandpromoteeconomicstability.
Bysupportingbusinessesinmanagingrisksandi liquidity,thesefinancialtoolsarecrucialinpromo tradeandeconomicstability.Throughtheseeffor insuranceandfactoringwillenhancefinancialres contributetothebroadergoalofsustainableeco development.
Integratingcreditinsuranceandfactoringwillreq cooperation,education,andinnovation.Byembra elements,stakeholderscanunlockthefullpotent financialtoolsandcreateamorerobustandresil tradeenvironmentfordecadestocome.
FCIistheGlobalRepresentativeBodyforFactoringandFinancingofOpen AccountDomesticandInternationalTradeReceivables.Establishedin1968asa non-profitglobalassociation,FCInowhas400membercompaniesacrossmore than90countries,creatingauniquenetworkforcross-borderfactoring cooperation.Membertransactionsrepresentabout50%oftheworld’s internationalcorrespondentfactoringvolume.
FCIisanon-exclusiveorganisation,opentoanycompanyprovidingorplanning toprovideopenaccounttradefinanceservices,aswellasindustryservice providersAfter50years,FCIexpandedtoincludereversefactoringand IslamicInternationalFactoring
FCI'soriginsincludeastronglegalframework(FCIConstitution,Interfactor Agreement,GeneralRulesforInternationalFactoring-GRIF,Edifactoringcom Rules,SupplementalAgreementforIslamicInternationalFactoring,GeneralRules forFCIreverseandFCIRulesofArbitration),platformsforcross-border transactions(edifactoringcomandFCIreverse)andmorethan50years accumulatedknowledge(FCIAcademy)
FCI'sactivitiesaregroupedintothreeareas:
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Attractingaround170kmonthlyreaders,ourpublications haveaglobalaudiencein187countries.
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TFGarestrategicmediapartnersfortradeconferenceproviders aroundtheworld.
TFGalsohoststheInternationalTradeProfessionalsProgrammewithLIBF, andfundstheAccelerateScholarship,agranttohelpstudentstopursue acareerintrade.OthersknowusthroughourAnnualInternationalTrade Awards,celebratingoutstandingplayersandcontributorsinthetrade ecosystem
Throughtheseactivities,TFGisdemocratisingtradefinance.