U.S. Companies Take More Risks With Receivables

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Only a small portion of medium to large businesses protect their receivables through trade credit insurance, a risky business philosophy that could have adverse effects on a company’s cash flow.

Despite the slew of large corporate insolvencies – Delphi, Winn-Dixie, Enron, K-Mart – that have sent shockwaves through the business world in recent years, only a small portion of medium to large businesses protect their receivables through trade credit insurance. This risky business philosophy could have adverse effects on a company’s cash flow, no matter how well protected from unexpected bad debt losses they may believe their company to be.

“Traditionally, American businesses are ‘risk takers,’ and they take little precaution against the risk of bankruptcy of their suppliers, contrary to their European counterparts,” said Paul Overeem, CEO of Euler Hermes ACI – North America’s oldest and largest provider of trade credit solutions. Overeem believes there are several main reasons for this, such as domestic suppliers feeling more comfortable dealing within their own geographic market, and many businesses having invested in fortifying their own credit management infrastructure.

Notwithstanding, the purchase of trade credit insurance can be beneficial to a company: receiving continual information about buyers to help minimize unexpected bad debt losses, and indemnifying a loss should it occur are just two of the numerous value propositions. Euler Hermes ACI utilizes a proprietary database that monitors the credit worthiness of more than 40 million companies worldwide; this provides advance warning for policyholders and allows losses to be minimized in the event of a large corporate insolvency, such as Enron. “Our final exposure following the Enron bankruptcy, for example, was minuscule, even though we had more than $120 million in coverage approximately six months before the insolvency occurred,” said Overeem.

Protecting receivables has become increasingly important for public companies also due to Sarbanes-Oxley, as CEOs and CFOs have to do everything in their power to keep their financials in compliance and answer to their stockholders. Trade credit insurance offers a solution for directors and officers – by purchasing a trade credit insurance policy, a company retains an objective third party that can review existing and new buyers and steer a company away from potential pitfalls. “The trade credit insurer becomes a major partner in the sales and credit management process by vetting and monitoring buyers,” Overeem said. “In most instances, that is a welcome reality check that allows a company to make more informed decisions about the granting of credit.”

Overall, trade credit insurance provides one of the key ingredients for a healthy financial reporting system, concluded Overeem. “Better information leads to better loss avoidance procedures and an improved bottom line.”

For more information about Euler Hermes ACI products and services, visit the company’s website at http://www.eulerhermes.com/usa.

Euler Hermes is the worldwide leader in credit insurance and one of the leaders in bonding and guarantees. With 5,400 employees in 41 countries, Euler Hermes offers a complete range of services for the management of customer receivables. The North American subsidiary (Euler Hermes ACI) is headquartered in Owings Mills, MD. For more information visit http://www.eulerhermes.com/usa.

Euler Hermes, a subsidiary of AGF and a member of Allianz, is listed on Euronext Paris. Standard & Poor’s rates the group and its principal credit insurance subsidiaries AA-.

Press Contact:

Rick Ostopowicz

Euler Hermes ACI Public Relations and Communications Specialist

Phone: (410) 753-0652


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Rick Ostopowicz