484-595-0100
Liquidity matters: Corporates may need half a trillion of additional working capital requirement financing in 2021

Liquidity matters: Corporates may need half a trillion of additional working capital requirement financing in 2021

Used with Permission from eulerhermes.com

Summary

      • In 2020, Working Capital Requirements in the West increased (+5 days in North America and +1 day across Western Europe) while it dropped in regions such as Latin America (-3 days), Eastern Europe (-2 days) and APAC (-1 day). Inventory management and government support explain most of this divide. In the US and EU, severe lockdowns pushed companies into a “forced” stockpiling mode, which was fortunately tempered by the “invisible bank”, i.e. the very accommodating management of payment terms between customers and suppliers, , partly financed by liquidity support measures. 2020 saw a surge in WCR across industrial sectors: +13 days for metals to 95 days, +9 days to 117 days for machinery, +4 days to 84 days for paper and +3 days to 87 days for automotive.
      • Looking ahead, we estimate that large companies will face a record increase of EUR453bn in WCR  in 2021, equivalent to +4 days of turnover, up to EUR8.4trn. This comes in a context of the strong demand rebound triggered by the grand reopening, alongside severe shortages in inputs, labor and final goods. The surge in WCR already observed in most developed economies will ramp up in 2021, while WCR would remain well under control in a few emerging countries, notably in China (-6 days). In both the US and the Eurozone, we expect WCR to rise by +4 days.
      • While all sectors will see a rise in WCR, consumer goods sectors could see the biggest jump. Last year was a year of divergence. We expect many global sector WCR levels to resynchronize on the upside in 2021, with retail (+9 days up to 52 days) and agrifood (+8 days up to 81 days) seeing the largest rises, followed by industrial sectors such as metals (+7 days up to 103 days), transport equipment (+5 days) and machinery (+4 days).
      • Stocks matter: Along with the “just in case” model of inventory management, and the end of “just in time” for most sectors, rebuilding stocks in an environment of supply shortages will be the key driver of the increase in global WCR, notably across Western European countries. In 2020, Days Inventory Outstanding surged by +5 days in North America and by +1 day in Western countries, while the drop in inventories across Emerging Markets made up for the stockpiling in developed economies. In 2021, we expect pent-up demand and the massive restocking policies of Western companies in the midst of global supply-chain disruptions to weigh notably on their WCR levels. However, in 2022, reduced supply bottlenecks should mitigate the soaring inventory fallout on developed countries’ WCR.
      • State support matters, too: The additional WCR needs represent less than 20% of non-financial corporates’ net cash positions in the Eurozone. However, total deposits of non-financial corporates cover at best 30% of total debt, with France the most vulnerable. Our estimations for the Eurozone show that NFCs’ net cash positions (deposits – new loans up to EUR1mn) increased by EUR547bn in 2020, almost three times more compared to 2019. This compares to EUR102bn of expected additional WCR needed to be financed in 2021, i.e. 17% of 2020 net cash positions. Since the end of 2020, net cash positions have continued to increase in the Eurozone (EUR38bn as of May 2021), with Germany (+EUR18bn) and Italy (+EUR7bn) on top of the list, while in France net cash positions fell by -EUR9bn. However, if the grace periods on state-guaranteed loans are not extended beyond 2021, cash buffers will decrease as total deposits on non-financial corporates cover 30% of total debts at best, with only 23% in France, one of the lowest ratios.

A glance at the change in Working Capital Requirements in 2020 for 36 countries reveals a divide between Advanced Economies and Emerging Markets for the very first time. The WCR level in the West increased (+5 days in North America and +1 day across Western Europe) while it dropped in regions such as Latin America (-3 days), Eastern Europe (-2 days) and APAC (-1 day). Inventory management explains most of this diverging trend (see Appendix).

In EMs, total inventory levels were minimally impacted as demand for goods picked up and has remained strong since the summer of 2020. In contrast, the more severe lockdowns in the US and EU pushed companies into a “forced” stockpiling mode. France, Denmark and Spain, for example, saw their inventory outstanding level surge by +5 days, +7 days and +10 days, respectively, last year. The very accommodating management of payment terms between customers and suppliers fortunately tempered these increases in inventories in some Eurozone countries. France, for example, succeeded in seeing its WCR drop by -2 days over the year, thanks to longer payment terms to suppliers (+6 days) in relation to shorter payments from customers (-1 day).

Massive stockpiling always weighs on WCR levels and cash balances accordingly. However, it is not always a bad thing: it can pay off if it arises from companies’ expectations about future demand growth, to be sure of being able to cater to clients’ orders on time after the crisis period. Conversely, if stockpiling results from an inability to deplete current inventories fast enough, it usually brings on cash shortages for the company, which could end up going bust in the worst case. The different levels of change in WCR from one sector to the other also depend on where they are located in the global supply chain scale in regards to the final consumer. The more a sector is capital-intensive, the more it undergoes a significant WCR rise as any supply disruptions are more expensive when a plant has to temporarily stop production due to a lack of inputs.

2020 saw a surge in WCR across industrial sectors (see Figure 1): +13 days for metals to 95 days, +9 days to 117 days for machinery, +4 days to 84 days for paper and +3 days to 87 days for automotive. These sectors were forced into stockpiling during lockdowns instead of shutting down their plants because of how high closure costs usually are for capital-intensive activities. Overall, metals and machinery were the two losers in regards to last year’s changes in WCR: The Covid-19 crisis has highlighted how inflexible their manufacturing tools are in case of a sudden change in the economic cycle, especially from the inventory point of view. Conversely, the sectors most exposed to the boom of remote work saw their WCR level massively benefit from resilient demand and destocking. This includes electronics ranging from semiconductors to computers (-13 days down to 94 days) as the sector saw skyrocketing demand in 2020. Household equipment saw a fall in WCR of -5 days (down to 92 days), thanks to better-than-expected sales during lockdowns while construction also registered a fall in WCR (-4 days down to 76 days) as the sector cashed in on the shutdowns of new building programs to sell off all inventories left.

The two special cases are pharmaceuticals and automotive, which both saw their respective WCR rise by +3 days, pushing them up to a ten-year record high: 106 days of turnover for the former and 87 days of turnover for the latter. In spite of selling its medicines through drug stores, the pharmaceuticals sector unfortunately bears a very high level of WCR because drug makers usually deal with public hospitals and social security programs with very long payment terms. Conversely, pharmaceuticals has always generated a high level of cash flow so that it can easily support longer payment terms. The high WCR in the automotive sector has more to do with car dealers closely linked to carmakers by the fact that they share the same brand and usually support the funding of the largest part of car inventories.

WCR, just like Days Sales Outstanding (DSOs), tend to increase both in recession and recovery times. In Figure 2, we try to graph the effect that unprecedented liquidity support measures by governments have had – and continue to have – on compressing WCR variations. Initially designed to avoid hysteresis effects (bankruptcies and unemployment), and unlike the 2008-09 crisis, the Covid-19 crisis response has been very much focused on avoiding liquidity gaps and preserving B2B flows and credit. Using IMF data on liquidity support measures (state-guaranteed loans, moratoria on debt, subsidies) and our own WCR calculations (2021 forecasts explained hereafter), we see the lifeline from governments to help suppliers (the invisible bank) continue to finance their clients. In Europe, for instance, the WCR change has been quite limited, alongside very generous liquidity bridges. Also note that initial conditions (WCR levels, structure of the economy), as well as varying intensities of the crisis or recovery, certainly explain specific country developments (Spain and China for e.g.) In large Emerging Markets, we see that liquidity gaps may have been only partially bridged and that corporates will be faced with binding financing constraints as they return to pre-crisis activity.

Figure 1: Global sector WCR in 2020, in number of days (worldwide average)
Figure 1: Global sector WCR in 2020, in number of days (worldwide average)
Sources: Bloomberg, Euler Hermes, Allianz Research

 

Summary

      • In 2020, Working Capital Requirements in the West increased (+5 days in North America and +1 day across Western Europe) while it dropped in regions such as Latin America (-3 days), Eastern Europe (-2 days) and APAC (-1 day). Inventory management and government support explain most of this divide. In the US and EU, severe lockdowns pushed companies into a “forced” stockpiling mode, which was fortunately tempered by the “invisible bank”, i.e. the very accommodating management of payment terms between customers and suppliers, , partly financed by liquidity support measures. 2020 saw a surge in WCR across industrial sectors: +13 days for metals to 95 days, +9 days to 117 days for machinery, +4 days to 84 days for paper and +3 days to 87 days for automotive.
      • Looking ahead, we estimate that large companies will face a record increase of EUR453bn in WCR  in 2021, equivalent to +4 days of turnover, up to EUR8.4trn. This comes in a context of the strong demand rebound triggered by the grand reopening, alongside severe shortages in inputs, labor and final goods. The surge in WCR already observed in most developed economies will ramp up in 2021, while WCR would remain well under control in a few emerging countries, notably in China (-6 days). In both the US and the Eurozone, we expect WCR to rise by +4 days.
      • While all sectors will see a rise in WCR, consumer goods sectors could see the biggest jump. Last year was a year of divergence. We expect many global sector WCR levels to resynchronize on the upside in 2021, with retail (+9 days up to 52 days) and agrifood (+8 days up to 81 days) seeing the largest rises, followed by industrial sectors such as metals (+7 days up to 103 days), transport equipment (+5 days) and machinery (+4 days).
      • Stocks matter: Along with the “just in case” model of inventory management, and the end of “just in time” for most sectors, rebuilding stocks in an environment of supply shortages will be the key driver of the increase in global WCR, notably across Western European countries. In 2020, Days Inventory Outstanding surged by +5 days in North America and by +1 day in Western countries, while the drop in inventories across Emerging Markets made up for the stockpiling in developed economies. In 2021, we expect pent-up demand and the massive restocking policies of Western companies in the midst of global supply-chain disruptions to weigh notably on their WCR levels. However, in 2022, reduced supply bottlenecks should mitigate the soaring inventory fallout on developed countries’ WCR.
      • State support matters, too: The additional WCR needs represent less than 20% of non-financial corporates’ net cash positions in the Eurozone. However, total deposits of non-financial corporates cover at best 30% of total debt, with France the most vulnerable. Our estimations for the Eurozone show that NFCs’ net cash positions (deposits – new loans up to EUR1mn) increased by EUR547bn in 2020, almost three times more compared to 2019. This compares to EUR102bn of expected additional WCR needed to be financed in 2021, i.e. 17% of 2020 net cash positions. Since the end of 2020, net cash positions have continued to increase in the Eurozone (EUR38bn as of May 2021), with Germany (+EUR18bn) and Italy (+EUR7bn) on top of the list, while in France net cash positions fell by -EUR9bn. However, if the grace periods on state-guaranteed loans are not extended beyond 2021, cash buffers will decrease as total deposits on non-financial corporates cover 30% of total debts at best, with only 23% in France, one of the lowest ratios.

A glance at the change in Working Capital Requirements in 2020 for 36 countries reveals a divide between Advanced Economies and Emerging Markets for the very first time. The WCR level in the West increased (+5 days in North America and +1 day across Western Europe) while it dropped in regions such as Latin America (-3 days), Eastern Europe (-2 days) and APAC (-1 day). Inventory management explains most of this diverging trend (see Appendix).

In EMs, total inventory levels were minimally impacted as demand for goods picked up and has remained strong since the summer of 2020. In contrast, the more severe lockdowns in the US and EU pushed companies into a “forced” stockpiling mode. France, Denmark and Spain, for example, saw their inventory outstanding level surge by +5 days, +7 days and +10 days, respectively, last year. The very accommodating management of payment terms between customers and suppliers fortunately tempered these increases in inventories in some Eurozone countries. France, for example, succeeded in seeing its WCR drop by -2 days over the year, thanks to longer payment terms to suppliers (+6 days) in relation to shorter payments from customers (-1 day).

Massive stockpiling always weighs on WCR levels and cash balances accordingly. However, it is not always a bad thing: it can pay off if it arises from companies’ expectations about future demand growth, to be sure of being able to cater to clients’ orders on time after the crisis period. Conversely, if stockpiling results from an inability to deplete current inventories fast enough, it usually brings on cash shortages for the company, which could end up going bust in the worst case. The different levels of change in WCR from one sector to the other also depend on where they are located in the global supply chain scale in regards to the final consumer. The more a sector is capital-intensive, the more it undergoes a significant WCR rise as any supply disruptions are more expensive when a plant has to temporarily stop production due to a lack of inputs.

2020 saw a surge in WCR across industrial sectors (see Figure 1): +13 days for metals to 95 days, +9 days to 117 days for machinery, +4 days to 84 days for paper and +3 days to 87 days for automotive. These sectors were forced into stockpiling during lockdowns instead of shutting down their plants because of how high closure costs usually are for capital-intensive activities. Overall, metals and machinery were the two losers in regards to last year’s changes in WCR: The Covid-19 crisis has highlighted how inflexible their manufacturing tools are in case of a sudden change in the economic cycle, especially from the inventory point of view. Conversely, the sectors most exposed to the boom of remote work saw their WCR level massively benefit from resilient demand and destocking. This includes electronics ranging from semiconductors to computers (-13 days down to 94 days) as the sector saw skyrocketing demand in 2020. Household equipment saw a fall in WCR of -5 days (down to 92 days), thanks to better-than-expected sales during lockdowns while construction also registered a fall in WCR (-4 days down to 76 days) as the sector cashed in on the shutdowns of new building programs to sell off all inventories left.

The two special cases are pharmaceuticals and automotive, which both saw their respective WCR rise by +3 days, pushing them up to a ten-year record high: 106 days of turnover for the former and 87 days of turnover for the latter. In spite of selling its medicines through drug stores, the pharmaceuticals sector unfortunately bears a very high level of WCR because drug makers usually deal with public hospitals and social security programs with very long payment terms. Conversely, pharmaceuticals has always generated a high level of cash flow so that it can easily support longer payment terms. The high WCR in the automotive sector has more to do with car dealers closely linked to carmakers by the fact that they share the same brand and usually support the funding of the largest part of car inventories.

WCR, just like Days Sales Outstanding (DSOs), tend to increase both in recession and recovery times. In Figure 2, we try to graph the effect that unprecedented liquidity support measures by governments have had – and continue to have – on compressing WCR variations. Initially designed to avoid hysteresis effects (bankruptcies and unemployment), and unlike the 2008-09 crisis, the Covid-19 crisis response has been very much focused on avoiding liquidity gaps and preserving B2B flows and credit. Using IMF data on liquidity support measures (state-guaranteed loans, moratoria on debt, subsidies) and our own WCR calculations (2021 forecasts explained hereafter), we see the lifeline from governments to help suppliers (the invisible bank) continue to finance their clients. In Europe, for instance, the WCR change has been quite limited, alongside very generous liquidity bridges. Also note that initial conditions (WCR levels, structure of the economy), as well as varying intensities of the crisis or recovery, certainly explain specific country developments (Spain and China for e.g.) In large Emerging Markets, we see that liquidity gaps may have been only partially bridged and that corporates will be faced with binding financing constraints as they return to pre-crisis activity.

 

Figure 1: Global sector WCR in 2020, in number of days (worldwide average)
Figure 1: Global sector WCR in 2020, in number of days (worldwide average)
Sources: Bloomberg, Euler Hermes, Allianz Research

Figure 3 summarizes the results of our WCR forecasts in 2021 for a few Western countries. France clearly appears to be the weak link in our sample as the country whose cash needs are likely to be the highest in order to finance the additional WCR of EUR31bn. Germany and Spain follow, with EUR17bn of additional WCR each, albeit a difference in level (EUR383bn for Germany and EUR109bn for Spain). The Netherlands’ additional WCR of EUR15bn expected in 2021 has to be monitored because this country was previously known for keeping its WCR low. Positioned as a big European platform country for international trade, it is no doubt paying more attention to enough restocking to avoid any fallout of supply-chain disruptions on its WCR. With its additional WCR of EUR153bn expected for the ongoing year, the US accounts for a third of the global additional WCR of EUR453bn needed to be funded in 2021, for a total of more than EUR2600bn.

Figure 3: Breakdown and 2021 forecasts of WCR amounts (EUR bn)

In 2021, nearly every country will see an increase in WCR levels, but the rise will be more significant across the northern hemisphere, given the dynamism of demand in the Eurozone and its massive restocking policies against very low levels of inventories (see Figure 4). Hence, we expect an increase of +4 days on average in WCR across Europe in 2021, ranging from +6 days in France and +7 days in Switzerland to +10 days in Austria and a more worrisome +15 days in the Netherlands. For the US, we expect a rise of +4 days in 2021.

Similarly, when looking at sectors, the rise of WCR is likely to affect all 18 that we monitor, in line with the return to growth prompted by the grand reopening and massive vaccination campaigns, which will improve demand prospects. Hence, we expect WCR to resynchronize on the upside in 2021 at a global level, with the largest increases seen in sectors linked to final consumer goods or closely related to them. Yet, sectors considered as strongly industrial should also see their WCR rise in 2021, such as metals, pharmaceuticals, transport equipment and machinery due to surging commodity prices, which will raise their production costs.

Figure 4 Inventories by sector
2021 WCR forecasts by sector (number of days)
Global demand by sector (new orders + backlogs of work)

Which sectors are the ones to watch? Agrifood (+8 days up to 81 days), retail (+9 days up to 52 days), transport (+ 4 days up to 32 days) and household equipment (+5 days to 97 days). We also expect large rises in WCR for metals (+7 days up to 103 days), pharmaceuticals (+5 days), transport equipment (+5 days) and machinery (+4 days). Last year, the transport equipment (aeronautics) sector benefited from the large destocking of Boeing’s 737 Max planes since these were allowed to fly again from the last quarter of 2020.

The WCR levels for electronics (+1 day), energy O&G (+2 days) and telecom (+0 days) are expected to remain around their long-term historical levels. Their WCR are better suited to withstand any upward pressures despite the acceleration of the recovery around the world. Now more than ever they have become instrumental to the new industrial background taking shape through global digitalization, which puts them in a strong position to set payment terms for both customers and suppliers.

Our WCR forecasts highlight a ten-year high level in 2021 for some sectors, notably agrifood (at 81 days), retail (52 days), pharmaceuticals (111 days), automotive (92 days) and machinery (121 days). These record levels could put companies at risk if they are denied additional credit lines from banks when they need to finance their operating cycle on a rise.

Furthermore, agrifood and retail are two specific sectors strongly destabilized by the booming remote work and e-commerce models, respectively. Not only has e-commerce prevailed over brick-and-mortar retail throughout the world, but also it is faster than before the Covid-19 crisis. Yet, meeting customers’ demands online usually requires e-commerce players to bear a higher level of stocks than retail outlets. It is all the more required now that consumption patterns have shifted towards durable goods, and government income support strengthened demand, while transportation services were limited. The conjunction of booming demand for consumer durables from Asia and supply-side bottlenecks created by sanitary restrictions in ports and terminals have kept shipping costs elevated for several months and made it all the more important to keep high inventories in the West.

However, stockpiling can also result from an inability to deplete current inventories fast enough. As a result, it can usually bring on cash shortages that could even push a company to go bust in the worst case. If replenishing current inventories, particularly in the northern hemisphere, is fueling the rise in WCR globally, changes in payment terms granted to clients should add to this upswing over 2021. This is because a relaxation in payment terms is usually an easy way of getting back market shares that could have been definitively lost by the supply disruptions that occurred last year due to the pandemic.

In the Eurozone, companies’ available cash surpluses generated by massive state support policies (notably direct liquidity support and state-guaranteed loans) appear to be significantly higher than the looming additional amounts of WCR.

Our estimations for the Eurozone show that the net cash positions (deposits – new loans up to EUR1mn) of non-financial corporates increased by EUR547bn in 2020, almost three times more compared to 2019. This compares to EUR102bn of expected additional WCR needed to be financed in 2021, i.e. 17% of the 2020 net cash positions. Since the end of 2020, net cash positions have continued to increase in the Eurozone (EUR38bn as of May 2021), with Germany (+EUR18bn) and Italy (+EUR7bn), on top of the list, while in France net cash positions fell by –EUR9bn, which suggests non-financial corporates have started to use their deposits in addition to new loans for operating activities (see Figure 6). German companies benefit from half of the French amount of cash surpluses stemming from public support policies back in 2020 (EUR93bn against EUR197bn in France). The positive point is that the first five months of 2021 show a further rise in cash generation of EUR18bn, which will fully cover the additional WCR expected in 2021. This stems from either additional public support programs or German companies’ profitability generating positive cash flows again since the beginning of the year alongside recovering export flows.

Figure 7 Available cash positions in 2020

While reassuring, it is important to bear in mind that these excess net cash positions are also needed for the repayment of all other debts. Therefore, this cash cushion might evaporate much quicker than expected, notably if the grace periods on state-guaranteed loans are not prolonged beyond the end of 2021 and companies need to start reimbursing their debt. Looking at the share of total coverage of the stock of loans & debt securities by total non-financial corporates’ deposits, France and Belgium appear to be most vulnerable despite the high levels of available cash. Indeed, total deposits cover 23% of total stock of total debt against around 30% in Germany and Italy (see Figure 8).

Fig 8 Share of coverage of total stock of loans and debt securities

About Securitas

Since 2004, Securitas Global Risk Solutions (“Securitas”) has helped clients worldwide develop credit and political risk transfer solutions that provides value on numerous levels.  As an independent trade credit and political risk insurance brokerage, Securitas is focused on developing comprehensive solutions that meet the needs of clients, ensuring complete understanding of policy wording and delivering excellent responsive service.

Recommended News

Let’s Get in Touch

Office

900 West Valley Road Suite 701, Wayne, PA 19087

Call Us

484-595-0100

Is Global Trade in Quarantine?

Is Global Trade in Quarantine?

The outbreak and spread of the Coronavirus disease (COVID-19) has stoked global fear of a pandemic.  Disruptions to business in China and other affected countries are rising as are worldwide disruptions to travel and trade as countries scramble to put safeguards in place to stem the spread of the virus.

For companies with overseas operations and business, this latest public health crisis underscores the importance of planning for the unexpected, including an annual comprehensive assessment to properly mitigate the risk of doing business overseas where situations can change quite rapidly.

Like earlier epidemics such as SARS in 2002-2003 and the Ebola outbreak of 2014-2016, efforts to contain transmissions involve a range of decisions to quarantine the sick and minimize human-to-human contact.  This proves particularly difficult in a global economy in which the flow of goods and people are both commonplace and vital, even in areas of the world seen as remote or rural.  Outbreaks raise public concerns and even outright fear in both nearby countries and worldwide, and can lead to political decisions in non-crisis countries to suspend travel or block the transport of some or all goods.  These actions are often sudden and unforeseen, with reaching consequences for complex supply chains.

Stories of the economic impact of Coronavirus are developing.  At present, the disease remains mostly centered in China and that country is expected to see the most drastic economic impact.  Already analysts are predicting both a significant first-quarter economic slowdown and an overall GDP decline for 2020 as many businesses remain closed or people remain at home, especially in the auto-manufacturing hub of Wuhan at the center of the crisis.  With China’s economy already cooling, (GDP fell to 6.1% in 2019 from 6.6% in 2018) it remains to be seen what the impact will be on China’s export-driven growth, particularly electronics exports or its $280 billion per year textile exports.

Companies doing business in China are in a scramble to adjust their operations and specific industries are noting shocks.  American exporters of agricultural products and machinery are already feeling the effects of the slowdown, as China struggles to keep food supply chains open in the face of quarantines and declining consumption.  West Coast port traffic is already reporting a significant decline in traffic. Other notable examples include the cruise ship industry and tourism in general, beset by virus outbreaks on ships and growing travel restrictions. In addition, the luxury goods industry, which enjoys popularity among wealthier Chinese consumers and tourists, is projecting a $40 billion decline in sales in 2020.

The Coronavirus outbreak highlights the need for international companies to engage in a range of contingency planning to anticipate how to adapt business operations in the face of risks such as public health crises, natural disasters, energy shortages, slow or broken lines of communication and political risk.  An entire field of business continuity planning encourages companies to regularly assess operational and financial risk by actively planning and developing working contingency plans.  Proper insurance coverage, just one aspect of this, is crucial so that cash flows and financial obligations can be protected, even in the case of unforeseen breaks in trade.

Since 2004, Securitas Global Risk Solutions (“Securitas”) has helped clients across the United States develop trade credit and political risk transfer solutions that protect businesses from buyer non-payment and geo-political risks.  As a specialty independent brokerage, Securitas is focused on developing comprehensive solutions that meet the needs of their client.

Recommended News

Let’s Get in Touch

Office

900 West Valley Road
Suite 701, Wayne, PA 19087

Call Us

484-595-0100

The Psychology of Risk

The Psychology of Risk

When to buy Trade Credit Insurance

Risk management often requires a counter-intuitive approach, challenging ourselves to think through whether we have accurately assessed the possible risks that face our businesses. Planning for a range of outcomes requires an evaluation of downside risk. This runs counter to the optimistic view we naturally have for our efforts in building individual enterprises. Yet the recent bankruptcy of Toys-R-Us highlights why, even when times are good and indicators seem positive, “black swan” events can happen. The time to plan for those events is ahead of the crisis.

Imagine the scenario: It is August 2017. As the CEO of a toy manufacturing company, your firm is coming up on the biggest, most lucrative season of the year – the December holidays. Irrespective of tradition, the bringer of gifts will need some 21st century manufacturing support — your toy company is just the one for the job!

Knowing the retail toy sector is largely seasonal, your company team understands the traditionally longer manufacturing lead times needed to stock store shelves. They have worked hard, marketed and won contracts from the major toy retailers in advance of the big season. Your company also anticipated the early holiday shoppers and made sure products will be delivered by the middle of September. It is this holiday-season Accounts Receivable that will fund your firm’s working capital throughout a good portion of next year.

Now ask the question: Do you need trade credit insurance on those Accounts Receivable? Is it a luxury or a necessity? There is market concentration with a historically large buyer that could not possibly file for bankruptcy right before the holiday season, the best time of the year. You decide to gamble with that thought in mind.

Your CFO, however, has been reading the trade press on the difficulties facing the retail sector, as the major box stores wither under cost competition from online retailers. She recommends you take a look at insuring buyer risk, just in case retailing has indeed crossed a Rubicon and become an online enterprise. The is not really the news you want to hear going into the busiest season of the year — but then again, you made her CFO because she is willing to bring you the hard news. With a quick call to your broker, you are able to line up a trade credit solution covering the risk concentration associated with a large buyer. As it turns out, this one call can be the move that saves your toy company. Unlike many of your competitors, you will now get paid for the shipped merchandise.

When everything is going well, accounts receivable are being paid and aging accounts are small, trade credit insurance might look like a luxury. However, it is also a good time to review your options and risks with an experienced trade credit insurance expert at Securitas Global. The premium rates can be lower with greater underwriting capacity. Even more importantly, markets recognize the value of supporting existing clients on credits like Toys “R” Us. Just prior to the bankruptcy filing, our Securitas Global team heard comments from vendors with respect to getting trade credit insurance on Toys-R-Us that included: “It’s expensive” and “We’re concerned, but we don’t think they’ll file yet.” When it became clear there would be a loss, and insurance was no longer available since underwriters will not insure a certain loss, the cost of protection became secondary. The conversation became one of whether any available coverage options existed.

The moral of the story: The time to put trade credit insurance in place is before there is a known risk. As one client shared “I have too much invested in my business to risk it because one of my customers can’t pay me.” Securitas Global can develop a customized solution to cover your needs at the right price point. We work with clients to determine their level of risk and how to allocate it then devise a policy that will cover their specific needs. This can include coverage for overseas buyers and ways to mitigate political risk. By insuring accounts receivable, we are able to preserve your firm’s working capital and support credit access.

Pamela M. Bates Joins Securitas

Pamela M. Bates Joins Securitas

PB

Securitas Global Risk Solutions is delighted to announce that Pamela Bates has joined our team to provide customized solutions to mitigate credit and investment risk in global markets.  Pamela will be based in Virginia, where, in addition to risk mitigation, she will provide strategic and policy advice to assist our clients in navigating international business opportunities.  Working for the U.S. Department of State for over two decades as a foreign service officer, Pamela managed U.S. diplomatic efforts on energy, information technology and government procurement issues.   In addition, she earned an MBA from the Wharton School.  Pamela brings the skills, knowledge and network to support our clients’ international expansion goals.

International markets provide outstanding opportunities for U.S. exporters to diversify their customer base.  Securitas provides risk mitigation strategies to help reduce the uncertainty associated with approaching new markets.  Pamela will concentrate on solutions ranging from mitigating private sector credit risk, sovereign contract frustration risk, financing international trade, protecting equity investments against political risk, along with government relations strategies, to bring products to global markets.

Having previously lived and worked in France, Germany, Switzerland, and Brazil, Pamela has an extensive network of contacts around the world. She speaks Spanish, Portuguese, and French, along with English.  While a State Department employee, she taught classes on diplomatic tradecraft, including how to evaluate sources of risk.  In addition to her MBA, Pamela earned a Bachelor’s degree in Economics and Environmental Studies from Bowdoin College in Maine and a Master’s degree in International Affairs from the Johns Hopkins University, School of Advanced International Studies.

Thank you for welcoming Pamela to Securitas team.

Securitas awarded 2015 Broker of the Year by Export-Import Bank

Securitas awarded 2015 Broker of the Year by Export-Import Bank

 

 

 

 

 

We’re honored to recognized for this award, and want to thank our clients, associates and friends as it wouldn’t have been possible without you.  Thanks again!

Export-Import Bank press release:

http://www.exim.gov/newsandevents/releases/2015/The-ExportImport-Bank-Announces-first-Recipients-of-Fiscal-Year-2014-Export-Awards.cfm

Export Finance Workshop – World Trade Center of Greater Philadelphia event on Nov 19

Please join us on Nov 19th in Camden, NJ at the Export Finance Workshop facilitated by the World Trade Center of Greater Philadelphia.  Please register at WTCGP website.

Export Finance Workshop November 19, 2014 

Learn the strategies to increase sales and reduce risk!

DATE AND TIME 

November 19, 2014

8:00 am – 12:00 pm

 

LOCATION 

The Waterfront Technology Center

Suite 300

200 Federal Street

Camden, NJ 08103

 

REGISTRATION FEE

WTCGP MEMBERS: $45

Non-Members: $60

REGISTER ONLINE

CLICK HERE

FOR MORE INFORMATION, CONTACT: 

 

Susan Mills Farrington

Office Manager & Membership Coordinator

sfarrington@wtcphila.org

215.586.4240

If financing is not part of your export strategy, you could be missing out on important sales or exposing your company to unnecessary risks.

 

 

Do not miss this opportunity to meet the region’s leading trade finance lenders and government finance representatives.
Receive the latest information on financing programs available with U.S. government backing from the Export – Import Bank of the United States and the Small Business Administration. You will also hear from companies like yours who have successfully utilized this financing to grow their international business.
Who should attend?

CEOs, CFOs, and international marketing managers of export-ready companies


You will learn how to:

  • Utilize export credit insurance to protect against buyer non-payment, minimize risk, and offer extended credit terms to international buyers to increase sales;
  • Obtain working capital loans with U.S. government backing to provide capital for inventory, hiring, and performance bonds to support export sales orders and free up needed capital;
  • Offer financing at competitive rates to prospective customers to help close the sale;
  • And more….