Supply chains are affected, commodity prices are rising, and payments are at risk.

Robert Meters, director of Schumann International Limited, discusses the current and long-term impacts of the conflict on receivables finance and credit risk management.

What effects will the Russia-Ukraine conflict have on receivables finance?

The world is in turmoil over the Russia-Ukraine conflict and supply chains have been strongly affected as a result. 

The consequence is a price increase in all sectors where Russian oil, gas, coal, and diesel are needed for production and transport. 

More than 15 countries depend on Russian gas for over 50% of their needs

Grain is a strong example, with more than 30% of the world’s wheat harvest coming from Russia and Ukraine. 

Fertiliser shortages will undoubtedly affect production and trade, which may lead to supply shortfalls. 

Companies in industries reliant on these goods may reduce their earnings before interest and taxes (EBIT) expectations. 

Historically, high inflation levels in many countries have impacted the global economic situation and are expected to lead to a decline in consumption and increased salary expectations, putting further pressure on EBIT. 

Allianz-Trade estimates high global inflation levels, revising their predictions up by 1.9pp to a minimum of 6% in 2022. 

This is due to higher energy prices, longer than expected supply chain disruptions, and the post-pandemic recovery, all of which will contribute to price pressures in equal measure. 

The current rise in mortgage rates and the increase in the cost of refinancing will also slow down construction activity.

Payment defaults, from the prevention of payments due to sanctions against Russia and the inability of companies in Ukraine to continue operating, will lead to insolvencies. 

Russia is nationalising capital goods and Russian payment obligation servicing is still an open question. 

Experts anticipate defaults, with Standard and Poor’s already calling the current status “selective default”. 

Projects in Russia or with Russian participation could be stopped or fail, as guarantees and warrants are unlikely to be enforced. 

Payment defaults can also be expected from companies that are unable to generate sufficient sales due to supply chain disruption. 

These disruptions coupled with high exposure to the current conflict may lead to insolvencies.

How can credit risk management deal with such dislocations in the market and the global impact?

First, credit risk management has the task of identifying transactions, business partners, and industries impacted by the conflict. 

Business relationships subject to sanctions must be assessed and necessary restrictions applied to ensure that companies are compliant. 

Global investors and buyers must reorient themselves, implement alternative investments, and reorganise supply chains. 

Purchasing and sales departments need to be involved in creating scenarios to secure production and stabilise supply chains. 

Firms must review delivery commitments with business partners and renegotiate them as needed in light of the current restrictions.

They should also review insurance policies with credit insurers to determine if they are still valid or require renegotiation in light of the current climate. 

Another important step for managing credit risk will be for organisations to monitor financial data from business partners with an eye for any indications of insolvency risk or an inability to meet payment deadlines. 

These default risks can be assessed with IT-supported secure credit management processes. 

While reviewing external stakeholders is critical, firms must not neglect to review their own internal risks. 

This can help them reflect on their own risk perspectives, information that can be leveraged for subsequent negotiations with business partners, insurance companies, and financiers.  

What is the outlook for the receivables finance industry after COVID-19 and the Russia-Ukraine crisis?

The COVID-19 crisis led to a worldwide downturn in GDP growth. 

Prior to February 2022, however, the general pace of global and country-specific economic recovery was relatively clear. 

The current conflict in Ukraine has reintroduced uncertainty and volatility into the economy. 

Allianz Trade has cut its global GDP growth forecast to 3.3% in 2022 and 2.8% in 2023, revised down by 0.8pp and 0.4pp, respectively.

Ukraine is suffering in the war and the long-term consequences cannot be foreseen in full. 

In Russia, the sanctions will lead to a recession this year (an 8% decline according to Allianz Trade), especially after comprehensive sanctions have been extended to the energy sector. 

Gas, oil, coal, and other commodity deliveries from Russia will be restricted in the future so that Russia will have significantly fewer financing options from these deals in the long run. 

In addition, Russia will likely be increasingly excluded from supply chains and investments in Russia are expected to decline sharply, if not cease entirely. 

High inflation means every shipment, transaction, or sale that a company makes, will carry a higher price tag and thus a higher value receivable for the same volumes sold. 

Even with lower volumes, demand for higher credit limits is expected to increase alongside the level of price rises and foreign exchange rates. 

Economies that are not growing rapidly may have a higher demand for financing and credit lines, which, when coupled with higher interest rates in the financial industry, may increase market stress.  

Supply chains will also see difficulties as globalisation remains politically contested. 

Countries have become more nationalistic, a trend that started pre-pandemic with the re-emergence of interstate (or inter-block) trade wars being a prime example. 

If the Russia-Ukraine conflict means further splintering into global trade blocks, pressure on supply chains and international trade may increase. 

Read our latest issue of Trade Finance Talks, May 2022

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Doing so can increase efficiency, reduce processing times, and lower costs, thus improving the quality of processes and decisions, and ultimately increasing customer satisfaction.

The digitalisation of existing processes for credit and limit decisions offers a foundation for banks and financial institutions to achieve those goals. 

Automated and customer-specific decisions are in high demand. Modern decision engines are available to achieve efficiency and meet the growth targets of banks and financial institutions.

Digital acceleration in finance 

The COVID-19 economic crisis has accelerated the need for the use of IT-supported decision-making systems and automation. 

It is now clear how important it is to flexibly and quickly adapt rules and calculations for credit and limit decisions and the monitoring of credit default risk. 

Applied rules and regulations in decision making must meet regulatory requirements. Transparency and traceability are relevant for audits. 

Adjustments of rules and regulations to the macroeconomic credit risk situation, and to the business policy of banks and financial institutions, must be tested in simulation procedures and must satisfy stress tests.

The performance of decision machines is essentially dependent on the availability of valid data. 

Clear identification data on the business partner and debtors are essential for credit and limit decisions. 

The business partner data must comply with the KYC checks, and borrower units must be formed. On this basis, clear risk assessments can be applied. 

For credit and limit decisions, a distinction is made as to whether risk mitigation provides for hedging through credit insurance. 

The automatic processes for accessing data from credit rating agencies and trade credit insurances are controlled accordingly in workflow management and decision engines, and run through the designated rule sets and scorecards for decisions and monitoring. 

Their own experience with a borrower and debtor is of particular importance in credit risk engines.

Payment experience is of outstanding importance in this context.

Learning through payment experience 

Payment experiences can be used to establish pattern recognition on experience values, and thus to derive predicted default probabilities and liquidity forecasts.

Mathematical and statistical methods are applied and can be further developed through the use of artificial intelligence (AI) and machine learning (ML). 

The application of artificial intelligence and machine learning in the context of credit and limit decisions of banks and financial institutions is determined by the volume and the statistically necessary structure of data sets. 

Artificial intelligence in the application of rule sets in decision engines is not new, and has already been practised for a long time.

Risk-based decision-making systems require sufficient valid data to apply artificial intelligence and machine learning to measure and monitor the risk situation.

Financial data – such as annual financial statement data and payment experiences – are particularly suitable. 

In the future, social media data and Internet of Things (IoT) data can provide additional relevant information that is not available in classic external data sources, such as data from credit rating agencies and trade credit insurances. 

Necessary technologies for the digitisation of information  – such as optical character recognition (OCR) – and transformation into structured data are available. 

The transfer of data through modern interface technology – application programming interface (API) – for the application of analyses and machine learning is also available.

Why use AI and ML anyway?

The goal of using artificial intelligence and machine learning is to optimise decision modelling to reduce bad debt, improve liquidity, and improve portfolio risk management. 

For banks and financial institutions that have to make purchasing decisions on receivables and portfolios, modern analysis and forecasting methods can mean a quantum leap for risk-dependent pricing, conditions, and financing.

Banks and financial institutions need self-service to easily and straightforwardly set and change sets of rules and immediately evaluate their impact. 

They can perform alternative calculations with existing and new data by changing the set of rules, which is necessary for regular validation of scorecards. 

This also includes the transparency of rules and of the calculations for audit-proof documentation of the changes.

Banks and financial institutions benefit from just-in-time adjustments commercially, and therefore from speed and efficiency to improve time-to-market.

Urgent data needs

To conclude, credit and limit decision engines must therefore start from valid single-point-of-truth data sets. 

Fast data access and fast updates of relevant data sets ensure reliable risk-dependent credit and limit decisions. 

The increasing use of structured data and image data, processed in the growing use of OCR solutions, is leading to the increasing use of decision-making machines using artificial intelligence and machine learning. 

Banks and financial institutions see more and more concrete application areas for modern decision engines to improve credit risk assessment, default forecast, limit allocation, liquidity forecasting, debt collection, and fraud prevention. 

Beyond credit and limit decisions and fraud prevention, environmental social governance (ESG) is one of the central topics in the future.

Read our latest issue of Trade Finance Talks, Spring 2022

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Trade credit insurance market (TCI): how has it fared against the pandemic?

RM: The credit insurance industry has learnt from the 2008/2009 financial crisis and drawn conclusions for dealing with the COVID-19 crisis. Credit insurance has contributed much more to stabilising the economy, although selected risk sectors have fallen out of coverage. Government measures to strengthen both companies and the insurance industry have been essential. 

The suspension of insolvency filing requirements have prevented waves of insolvencies and kept the loss ratio of insurances lower than expected at the beginning of the pandemic. In the future, more insolvencies will occur in companies that, despite government financing programmes, did not manage to turn around and stabilise their business, or due to causes of insolvency that may already have existed before the pandemic.

SCHUMANN’s 2021 outlook

RM: 2021 has been an extremely successful year so far. Customers from industry, trade, financial services and insurance have made investments in digital transformation processes and commissioned us to provide solutions. During the crisis, companies have had to react and provide employees with home office workplaces. It has become very clear that technology is essential for business to continue during this time. A sustainable awareness of IT-supported processes has emerged, which will continue to be important in the future. Furthermore, advantages of digital decision-making processes have become obvious and reservations about automated processes have been reduced.

Challenges in 2021

The biggest challenges now are for companies, financial institutions and insurance companies to quickly implement the transformation processes and provide the necessary resources. SCHUMANN helps to define the right project direction and to present implementation plans in such a way that clients are not overloaded but can safely achieve the transformation step by step.

The role of technology in assessing credit risk in the TCI market

RM: Technology plays an essential and forward-looking role in the TCI market. Technology is, for instance, used in automated data retrieval via API technology to access data that a company, financial institution or insurance company already has. The automatic, process-dependent procurement of data from business partners, such as information suppliers for onboarding or KYC processes, credit rating agencies, debt collection agencies or credit insurance companies, supplement the information base. On this basis, automatic, AI-supported data analyses and monitoring can be carried out. Machine learning is used in the credit risk industry for specific tasks. A condensation of the analysis results leads to key figures such as credit scores. In addition, forecasting methods are applied and tested. 

In the future, we expect data from the context of the Internet of Things and from networks to become more important, provided that data can be legally used and evaluated. Thus, it can be clearly stated that in digital processes, data sources are automatically used in a process-controlled manner and analysis results are used both for process control and for decision-making machines or in approval processes. Software providers must, therefore, have all relevant interfaces in a wide partner network and offer workflow management and decision engines that allow flexible adaptation to market requirements, as we experienced in the COVID-19 pandemic.

The post-pandemic recovery 

RM: The overall economy is on the road to recovery. Some sectors have returned to pre-COVID-19 pandemic order levels, although supply chains are still disrupted by the crisis. As the volume of business increases, so does the need for risk measures and financing to secure the company’s existence, such as receivables finance, asset-based finance and trade credit insurance or surety bonds. Insolvencies will rise, increasing the loss ratio compared to the COVID-19 crisis in 2020/2021. 

Risky sectors will have a harder time in the future accessing financing and trade credit insurance than before the crisis. In all sectors, the risk lies in the resilience and sustainability of the business and the needed availability of liquidity and financing. Post-pandemic recovery is dependent on further lockdowns no longer being necessary and constant economic growth taking place. 

Receivables finance: how trade credit insurance stepped in to support the industry

RM: Receivables finance volumes have collapsed since the start of the COVID-19 pandemic. For both financial institutions and credit insurers, the challenge was to determine default risks. The suspension of the obligation to file for insolvency as well as payment deferrals had to be taken into account, as well as state bridge financing, which typically does not come into play in the form of liquidity and financial analyses outside of a crisis. 

In addition, entrepreneurs have come under such pressure during the pandemic that they have resorted to fraudulent measures to secure their survival. This has made it even more difficult to check the value and validity of receivables for financial products. Credit insurers have focused their default risk assessments primarily on vulnerable industries that should receive none or limited coverage.

Challenges and opportunities in the receivables finance space

RM: The future of receivables financing depends on both attractive products and the processes used by financial institutions. Customers should be able to obtain financing with smart and fast processes. In addition, finance products should be characterised by clear target group orientation, both of which are cornerstones for achieving market access, especially for SMEs.

The opportunities for implementation outweigh the risks if financial institutions succeed in coupling the target group and market-oriented products with digital end-to-end processes or embedding modern data analysis processes in digital, comprehensible approval procedures. Fulfilment of regulatory requirements poses challenges for financial institutions but can be implemented very well with mature IT solutions, which have also led to a strengthening of the sustainability of the business.

SME access to cross-border finance: surge in Non-bank Financial Institutions (NBFIs) and fintech platforms 

RM: It is obvious that further developments in a society and an economy are largely determined by technological progress. Traditional financial institutions have thus been challenged by NBFs and fintechs for several years, as the necessary modern IT technology is available and can be used flexibly for financing platforms. Process orientation is essential in the context of the process design of the customer journey, in addition to the concrete financial products – NBF’s and fintechs recognised this and entered the markets. 

In the meantime, however, traditional providers have also embarked on the path of digital transformation and are combining a traditional strength with a promising IT development. On both sides – NBFs and fintechs as well as traditional financial institutions – there are winners and losers. Consolidation in the finance market is normal in conversion processes. The trend of digitalisation and corresponding product innovation will very much prevail. In cross-border business, the SMEs that benefit most are those that already use platforms that map a completely digital process in the international trade business with embedded financing products. Such platforms develop their strength through transparency, speed and reliability and thus strengthen trust in partners in the process chain. Blockchain solutions pursue the same goals and are used in complex process chains with many process partners. The trend in cross-border financing is forward-looking. Digital end-to-end processes require innovative digital processes and products from all business partners.     

Biggest challenges in the factoring industry post-pandemic

RM: Before the crisis, the volume of Receivables Finance enjoyed a constant growth trend from 2012 to 2019. Factoring even had an accelerated growth after the financial crisis than in the years before. The Covid-19 crisis has led to a significant decline in business volume. The slump in business volume at companies led to the decline in factoring volume. 

On the other hand, factoring also had a mitigating role through the availability of liquidity for companies in the crisis. The challenges now are to support restarting businesses and growth. Factoring has excellent prospects of providing the necessary liquidity for companies, especially in this phase, and is thus an essential pillar of corporate financing. The factoring industry has already developed brilliantly in the past. This form of financing will continue to hold its own in the future, just as other asset-based forms of financing play a significant role in growth phases.

Risk mitigation is paramount during this period

RM: Risk mitigation is crucial for the viability of companies, financial institutions and insurances. This is thus a key requirement of regulators, especially towards financial institutions. In times of crisis and subsequently, in start-up phases, it is particularly challenging to implement a risk-based expansion. Here, preliminary work is required in data procurement, data analysis supported by forecasting methods and process design in credit risk management. Classic credit risk management has always had an important role in the backend, but risk control in digital end-to-end processes can be managed from onboarding to the backend through targeted risk assessment and monitoring, as well as early warnings, in order to avoid default.

SCHUMANN’s products are expanding

RM: SCHUMANN will be expanding its market leadership in digital solutions for credit risk management. Further developments of the products for industry, trade, financial institutions as well as for trade credit insurances and the surety bond business are expected by the market. SCHUMANN products will be expanded to include further solution components with the aim of providing a complete digital end-to-end solution for each market segment. Cooperations with partner companies will be intensified and digital platforms and networks will be strengthened. In addition, business activities abroad will be expanded. SCHUMANN is taking the path of internationalisation which is where its customers are.

The post SCHUMANN Interview: Robert Meters – the trade credit insurance market, post-pandemic overview appeared first on Trade Finance Global.

So let us take a look at the core processes in global trade finance. Players in supply chains want to use modern digital networks to transform traditional processes and integrate financing and risk hedging into digital, fast, and transparent processes. Credit granting is part of such processes. 

Credit granting is found with corporates, banks, and financial institutions and requires sufficient up-to-date data in credit risk assessment and credit limit decisions. Data inventories that provide indications of default risks are therefore of paramount importance. Nevertheless, collaboration of the best data service providers are the foundation for a successful credit risk based automated straight through process for credit limit decisions and risk monitoring. Claims to use big data and modern methods of artificial intelligence and machine learning as well as data analytics often cannot be met adequately with only their own data and methods. 

A digital transformation is therefore not only relevant to internal technical solutions for the improvement of in-house processes, but also in cooperation with business partners like credit rating agencies, trade credit insurances and ECAs. Sophisticated measurements of default risks and risk hedging with trade credit insurances and ECAs reduce potential defaults. The procedure of cooperation with these business partners can lead to a higher benefit than the generation of results from the respective developments of non-experts.

Digital and automated processes relieve people in credit risk management of tedious and time-consuming routine work, which a machine can do very well. This relief gives our specialists in risk analysis and decision-making processes more time to make better use of their skills. The IT support leads to a modern implementation of management by exception in risk analysis and credit limit decisions. 

Integrated processes

IT solutions for credit risk management and credit limit decisions should enable process integration with data providers.

The need to implement fast and integrated processes requires a modern implementation of enterprise integration layer connections to internal administration systems as well as application programming interfaces (APIs) to business partners. Process chains are controlled and interlinked on the basis of triggers and parameters. A deep understanding of the processes by all business partners is a crucial prerequisite for superior processes with excellent results.

A technically supported straight-through process in banks and financial institutions begins with the customer e.g. in an online portal. This is where access to credit granting processes is initiated. Onboarding procedures can be streamlined by technically integrating master data checks, KYC (AML/CTF) and fraud protection processes as well as by automatically evaluating credit application data.

Experience shows that standard software solutions with the capability to easily configure and adjust processes according to the credit policy and regulations meet business requirements best. Modern workflow management and flexible decision-making machines (Business Process Model Notation BPMN and Decision Model and Notation DMN engines) support superior systems of market leaders. Especially in times of crisis, it is important to adjust own credit risk policy and immediately set up the processes accordingly.

Data analytics

Data analytics require sufficient data sources for specific workflows and decisions. Own databases, such as results of the financial data analysis or payment experiences related to credit customers, as well as data from credit rating agencies and trade credit insurances must be made available automatically at the time of the required use. API gateway technologies can allocate access to the best data source. 

Artificial Intelligence is used by data providers such as credit rating agencies and trade credit insurances but also by other sources for KYC (AML/CTF) or fraud detection. The users of credit risk management solutions and credit limit decision machines can directly use the valuable information from these partners. In addition, scientific scoring methods can be applied for data analysis on own databases related to customers, such as payment experiences, balance sheet analysis, liquidity forecasts, and portfolio risk analysis to complete comprehensive analytics. 

Best possible technical process integration of credit risk analysis and hedging through insurance requires a deep knowledge of scoring and AI methods for determining rating values and default probabilities of data suppliers. Credit rating agencies and credit insurers/ECA in particular have a large amount of relevant data at their disposal, which is a necessary prerequisite for the scientifically correct methods used. The combination of the analysis results with the data analyses of corporates, banks, and financial institutions allows clear distinctions to be made between buyers with strong credit ratings and those at risk of default or insolvency. 

“Business partners will become closer through digital connections and process chain integration with partner systems”

In export financing, SCHUMANN has unique financial data analysis procedures recognised by credit insurers/ECAs such as Euler Hermes, which are used to support financing decisions. These are particularly advantageous in portal solutions for export credit financing, as processes can be handled digitally, faster and with their quality assured. 

Scalability of Global Trade Finance

The potential of the straight-through processes in supply chains is evident from a scalability of the business perspective. IT-supported processes and automation allows fast limit decisions which are both compliant with rules, and reliable. Therefore, workflow and decision engines and IT-supported approval processes can be used to gain market leadership. Entering new market segments, such as SME, require particularly automated and efficient processes to ensure best customer experiences with low costs for each risk and limit decision.

Consequently, business partners will become closer through digital connections and process chain integration with partner systems. Business volumes can be controlled much better in digital and automated business partner networks, independent of time and personnel restrictions. In the international export business digital platforms support the transparency of process steps for each partner in the supply chain, financing, and risk hedging, e.g. through ECA. 

The future assessment is that technological business partner networks with digital connectivity and portal technology are the key driver of growth in global trade. Standardisation initiatives such as the ICC Digital Trade Standards Initiative (DSI) will facilitate technical interoperability in business partner networks and portals and therefore lead in the same direction of supporting innovative digitalisation for global business.

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Read our latest issue of Trade Finance Talks, Spring 2021, here

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Trade Credit Insurance (TCI) has a key role to play in the current economic crisis caused by the COVID-19 pandemic. The second lockdown wave is in full swing. The economy urgently needs financial support. The governments’ credit programs have been expanded. As a result of this lockdown, the economy is facing a worsening crisis, with a feared wave of bankruptcies in the first quarter of 2021.

Mike Holley (Nexus Underwriting), Stuart Lawson (Aon Credit International EMEA), Rob Nijhout (ICISA), and Paul Cannon (Swiss Re) discussed at the SCHUMANN conference held on 1^st October 2020 the current role of TCI and provided an outlook on the industry’s risk strategy throughout the crisis period.

In this video interview, the parties discussed expectations about availability of capacity going forwards, when will the claims come, long term outlook for the health of the trade credit sector, how will the crisis affect the technical underwriting methodology of credit insurers and the crisis as accelerator of digitization.

“The discussion was embedded in numerous highlights on innovations that support groundbreaking developments of technical platforms by using SCHUMANN partner networks”, said Robert Meters, SCHUMANN Head of Financial Services & Global Business and moderator at the SCHUMANN conference.

SCHUMANN Interview: Robert Meters – Rethinking Credit Risk Management in 2020 and Beyond

All sessions of the event were recorded and are not only available to the more than 600 experts from all over the world who took part, but also to all interested parties after free registration on the SCHUMANN portal here.

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TFG heard from Robert Meters on the impact of the pandemic on trade credit insurance and the recent Covid-19 initiatives including digital approaches by SCHUMANN.

Featuring: Robert Meters (RM), Head of Marketing and Sales, Global Business & Financial Services at SCHUMANN

Host: Deepesh Patel (DP), Editor, Trade Finance Global

TFG heard from Robert Meters, Head of Marketing and Sales, Global Business & Financial Services at SCHUMANN. He has been in the credit risk management industry since 1993 and has worked for leading information service providers as well as in the telecommunications industry.

At SCHUMANN, he is responsible for global business and the Financial Services division. He advises and takes care of customers in the automation of credit decisions and the implementation of a fully integrated credit management workflow system that also supports KYC processes.

SCHUMANN offers a leading credit risk management solution with excellent references in industry, trade, leasing, factoring, banking, trade credit and surety bond insurances.

Deepesh Patel (DP): Robert, thank you very much for joining us on Trade Finance Talks TV. A pleasure to have you on the show.

CPRI in 2020

It’s been quite the year for CPRI and trade, right? Compared to our 2020 predictions at the start of the year, things turned out quite differently, right? How’s 2020 been for SCHUMANN and your clients?

Robert Meters (RM): Already in 2019 we saw a generally weak global trade of goods and service growth of 1.5%. Considerable challenges flank growth expectations of national economies and international trade. Just to name a few: The automotive industry is in a process of transformation. Brexit is changing the economic relations between continental Europe and U.K. The disputes between the US and China are putting a strain on international markets. These circumstances have created an economic starting position, as set out in the predictions, and naturally have an additional impact on the current economic crisis.

The global economic crisis triggered by Covid-19 aggravates the situation in an all-encompassing and incomparable way. A negative impact on supply chains is likely to happen in view of an expected up to 30% decline in trade and trade finance according to the International Chamber of Commerce (ICC) 11^th annual Global Survey on Trade Finance 2020 and an expected rise in insolvencies worldwide of 26% (Atradius) to 35% (Euler Hermes) by 2021. A 5% contraction in 2020 global GDP is likely to happen and hopefully followed by a 6.5% recovery in 2021 according to Atradius. Of course, there is still high uncertainty.

The assessment and monitoring of political and economic risks is an essential part of corporate management as well as of trade credit and surety bond insurances. In recent years, corresponding projects for digitization in risk management have been implemented in all industries. This trend is continuing this year, which is not surprising. Although business volumes shrink, companies needed to implement risk management solutions on short notice.

In addition to risk management there is a high need to transform Know Your Customer (KYC) checks, countering anti-money laundering (AML) and the financing of terrorism (CFT) as well as those regulations related to international sanction digitally.

Therefore, SCHUMANN has been able to continue its growth course in 2020, because the topic of credit risk management and digital transformation of processes is on the top priority list for our clients. The companies, financial service providers, banks and insurance companies in the trade credit and surety bond segments that have already invested in our IT solutions have come through the crisis stronger.

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Trade credit insurance during Covid-19 – change of role?

DP: Taking a step back, what is the role of credit insurance in global trade and finance?

RM: By covering default risks, credit insurances ensure a significant reduction in credit risk, which gives trade and trade finance the scope for business transactions and growth. Credit insurances secure the granting of limits. To do so, policyholders must fulfil obligations. These include, for example, procedural instructions and notifications of non-payment by debtors.

DP: What is the role of trade credit insurance in the real economic crisis we are seeing now? Is the government backstop that has been offered by some governments enough to keep the TCI market running?

RM: Credit insurance is particularly important in the economic crisis for stabilising the economy.  However, the insurance industry will face major challenges in the future once state guarantees have ended. Governments are currently considering whether an extension of guarantees should take place. A wave of insolvencies is threatening in those countries where the insolvency applications that have been blocked so far, the termination of short-time working subsidies and the repayment of transitional loans are to take place in the coming months.  

Reductions and cancellations of limits can be expected as well as conservative underwriting for new limit requests and non-renewals for Reductions and cancellations of limits can be expected as well as conservative underwriting for new limit requests and non-renewals for certain industries from cancelable limit insurers. Non-cancelable limit insurers may force their insured to monitor risk and take sufficient measures as soon as losses can be expected. Discretionary limits may need to be cut. Insured companies are required to quickly adapt their credit decisions to new insurance obligations in view of the respective risk situation. In the Corona crisis the three big credit insurers already increased overdue debt reporting period to support the insured.

Technology for assessing risk – new demands in trade credit, surety bonds and insurance

DP: The need for technology has never been more important, not only because entire industries have been unable to go back to the office, but also because we need to look at new innovative approaches for credit management techniques and financial statement analysis – what has SCHUMANN been doing to help its clients?

RM: Credit risk specialists from all sectors – industry, trade, financial institutions, banks, trade credit and surety bond insurance companies – use SCHUMANN IT solutions for risk assessment and monitoring as well as debt collection.

It is essential to consolidate all data in order to assess and monitor a risk situation. For example, an API-Gateway to 50 partners in the information industry and trade credit insurances is available for this purpose. Supported by AI, all available own payment experiences with debtors are monitored.

Financial data analyses and simulations of financial data for predictions of expected defaults complete the information base. The software provides digital workflows and decision engines using the database for digital process control and automation. Intelligent techniques for the aggregation and evaluation of data support early warnings and enable concrete management by exception tasks for credit risk experts and in debt collection.

Automated, digital processes take over such routine tasks, can process and analyze large amounts of data, which cannot be done manually or efficiently by humans. This has considerably reduced the workload in the home office. At the same time, the information necessary for decision-making processes was available digitally at any time for every decision-maker at every location. And after all, it reduces the risk of human error significantly.

In the current crisis, it has been crucial that standard software can be quickly made available in cloud solutions to ensure rapid implementation of modern credit risk management solutions.

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The future of receivables post Covid-19

DP: Do you agree with Peter Mulroy’s thoughts on the future of receivables management and liquidity, the need for factoring has never been more important, and that post-Corona, Factoring will be in high demand during and after this crisis?

RM: The current statistics on the development of the global factoring business confirm the stabilizing effects of factoring for companies in recent months even though the total business volume in factoring has fallen significantly. It goes without saying that future waves of insolvencies will also affect the factoring industry and lead to defaults. Nevertheless, it can be expected that the rapid availability of liquidity offered to companies by factoring companies will be of increasing importance in the future to support business stability and growth.

At present, it is still difficult to assess whether factoring will develop as strongly after the current economic crisis as it did after the 2008/2009 financial crisis. The starting position for the factoring industry in the world regions and the market potentials are quite different. Possible growth rates will certainly vary from region to region, as the economies have different trading situations that are relevant for factoring. International trade relations are certainly a special feature.

However, in competition with traditional lending of banks, which are likely to be faced with increasingly high bad debts in the economic crisis and the need for sufficient risk capital buffer and higher credit costs in the future, the factoring industry is faced with considerable opportunities.

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DP: Can you give a couple of technology use-cases for credit assessment [AND/OR] factoring/receivables – has demand for this accelerated during the pandemic?

RM: Especially in times of crisis, immediate early warnings are essential. Any need for action on the part of the credit risk and TCI specialists and the experts in debt collection are immediately identified.  

Changes in procedures, e.g. in the allocation of credit limits, extension of payment periods or insurance notification periods, must be implemented immediately. Necessary measures are either digitally controlled or immediately executed automatically.

Default risk changes in the portfolio should be immediately available for controlling purposes. A particular challenge is posed by the extension of payment deadlines and insolvency applications. With the IT solution described above, however, it is possible to derive future forecasts of possible defaults and to check one’s own sustainable financial stability by means of simulations.

Risk assessments also extend to checking the financial stability of suppliers who are integrated in the supply chain and on whom a company is significantly dependent. This is about the stability of supply chains and the financing of the supply chain with possible necessary exchange of suppliers.

All these digital tools have been of extreme importance for trade, trade finance and also for credit insurers in the current economic situation and will become even more needed as soon as a wave of insolvencies follows the Corona crisis.

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DP: We’re excited to be partners of your SCHUMANN Conference 2020 – Digital Credit Risk Management on the 1st October. What are the key themes of this conference and who should attend?

RM: For the first time in SCHUMANN’s more than 20 year history, we are holding our annual conference virtually. In four online channels we focus on the topics “Risk assessment in times of crisis”, “Debt collection management and liquidity planning”, “Compliance” and “Technology and innovation”. The participants are managers specializing in finance, credit and risk management, compliance, debt collection, strategic controlling, digitalization and IT.

In our conference we will cover essential topics of credit risk management. We involve our customers and friendly partners and associations in the presentations and discussions to give a comprehensive picture of the requirements and solutions.

DP: What are you most looking forward to at this event?

RM: The credit risk manager community should move closer together. The conference offers the network and gives insights in a technological platform for all business partners who need to cooperate digitally. Technical innovations are discussed and important market trends for the operational and strategic digital transformation of processes are evaluated. I look forward to pioneering impulses from the credit risk community.

SCHUMANN Digital Credit Risk Management Conference

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The post SCHUMANN Interview: Robert Meters – Rethinking Credit Risk Management in 2020 and Beyond appeared first on Trade Finance Global.

The trade finance and credit and political risk insurance market (CPRI) has experienced unprecedented change as a result of the coronavirus pandemic. For the trade finance and trade credit insurance industry, everything from portfolio management to claims management has changed as a result of the crisis.

This complimentary virtual event will be split into 4 channels, including:

• Risk assessment in times of crisis
• Receivables management and liquidity planning
• Technology and innovation
• Compliance

Robert Meters, Head of Marketing & Sales, Global Business and Financial Services, SCHUMANN, said:

“Corona is likely to develop into an innovation accelerator. The credit risk manager community should move closer together. The conference offers the network and gives insights in a technological platform for all business partners who need to cooperate digitally. Technical innovations are discussed and important market trends for the operational and strategic digital transformation of processes are evaluated”.

Deepesh Patel, Director of Partnerships & Marketing at Trade Finance Global, said:

“Cooperation and coordination is key to overcoming the ongoing economic and health crisis. Trade credit insurance and surety bonds are critical components of global trade and trade finance. SCHUMANN’s 2020 Conference brings together industry experts in credit risk management. Collaborating on solutions to support trade at this current time is mission critical – it is a pleasure to partner with SCHUMANN.”

The post Rethinking Credit Risk Management – TFG announces partnership with SCHUMANN Conference 2020 appeared first on Trade Finance Global.