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Coface South – Credit insurance specialists

Coface South – E.W. Droppa & Associates, LLC. is a general agency for Coface North America. Providing solutions in credit insurance, business reports and commercial collections.

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After nearly two decades in the packaging industry, Izzy Eisenberg figured there was a need for more complicated specialty packing products — or as he put it, “the things that other people don’t like getting involved in.”

He was right, and the business he started, Packaging Methods Defined, took off. What worried him, though, was that most of his revenue came from three or four large clients. If one of them didn’t pay — or was even overly slow in paying — his business might have been at risk of failing, taking his personal wealth with it.

The amounts were so high I didn’t feel comfortable,” Mr. Eisenberg said, remembering that time 13 years ago. “Luckily, nothing happened when I first started.”

After three years in business, he had enough of a track record to get credit insurance, also known as receivable insurance, to insure what buyers owed him. Since then, he has had four claims, including a large one that would have been a financial blow to his company. The insurance carrier paid them out or otherwise resolved them.

Last week, I wrote about how business owners, whose wealth is tied up in their private companies, can raise money to buy out partners or acquire other businesses. Yet before getting to that stage, entrepreneurs often need to protect their companies — and their personal wealth — in case a client doesn’t pay its bill. And it would be impractical to keep so much cash in reserve.

This is where so-called limits insurers come in, offering coverage to firms with annual revenues of $1 million to $20 million.

Euler Hermes, a limits underwriter, recently introduced a plan called Simplicity, aimed at helping businesses with $1 million to $5 million in sales. Another insurer, Coface, offers the International Policy, an industry favorite, that is meant to be easy for a midsize business to buy and use. The policy looks just at the top accounts and insures the rest with a blanket policy.

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“Everyone is good until they’re not,” said Victor Sandy, executive vice president at Global Commercial Credit, an insurance broker. “You take a hit on receivables, it comes right out of your bottom line, or your retirement money.”

Bill Hawkins, founder and president of Compatible Cable, a cable distributor in Concord, Calif., said he got receivable insurance after a client he had worked with for a long time shut down and he wasn’t paid. He said he had revenue from a lot of accounts so it wasn’t devastating. But he said he started thinking about what would happen if one of his larger accounts went out of business.

“We’d never had any customers go out of business,” he said. “The insurance isn’t cheap. You have to stop and weigh the benefits of it.”

James Daly, president and chief executive for United States operations at Euler Hermes, said that rates varied, but someone insuring $1 million in receivables through the company’s Simplicity plan could expect to pay an annual premium of around $7,000.

“It’s designed to cover you for the bumps in the road,” Mr. Daly said. “It’s not designed to create total coverage. We know if you have one loss on $1 million in sales, it could be enough to put you out of business.”

Michael Chen, president of Myco Furniture in Houston, said he had been using factors — groups that buy a company’s receivables at a reduced rate — but switched to credit insurance through Euler Hermes as a way to cut costs and be more selective in what the company insured.

His company, which manufactures furniture in Asia and sells it in the United States, was able to insure about $5 million in receivables out of annual revenue of $15 million to $25 million. Mr. Chen said the cost for what it insured was half of a percent, down from the 2 percent on all of its receivables that factors charged.

“It’s more peace of mind,” Mr. Chen said. “That way, we don’t get burned on a large account. If we’re insuring $300,000 a month and one of those accounts files for bankruptcy or just doesn’t pay, we’re not out that money.”

Parker Freedman, president of ARI Global, an insurance broker, says that credit insurance is the last thing on most business owners’ minds, and that few think of it until they or someone they know encounter a loss.

“Is there a line in the sand that could hurt your company?” he said. “A loss that could hurt the company varies by the size and profitability of a company. The loss of $50,000 or $100,000 is going to be viewed differently by a $1 million company and a $20 million company. You try to figure out when does a loss get your attention.”

Yet Mr. Sandy pointed out that sometimes even the most seemingly secure companies fail to pay. That, he said, was the case with Target Canada, which filed for bankruptcy and left many of its vendors unpaid. “Just because they seem big and strong doesn’t mean they are,” he said.

For many entrepreneurs, credit insurance has other uses beyond covering payments. The firms that offer the insurance to smaller businesses have databases on the creditworthiness of companies all over the world.

“We meet new companies all the time, but we don’t know anything about them,” Mr. Hawkins said. His insurer can quickly check the creditworthiness of those businesses.

Mr. Chen said Euler Hermes’s database of 55 million accounts had helped him increase his sales. “If the customer was only approved for $10,000 to $20,000, Euler could say this is a creditworthy account,” he said. “We can approve them for $100,000. We can tell the salesperson that this company is creditworthy.”

Kerstin Braun, executive vice president of Coface North America, said that credit checking was useful to companies looking to expand internationally. “We can say we know this buyer and you shouldn’t ship, or we know this buyer and, yes, you can ship $500,000,” she said.

The insurance, which generally guarantees about 90 percent of the value of the receivables, essentially stripping out the profit, can help entrepreneurs increase what they can borrow from banks.

“If you’re pledging your receivables, you might see anywhere from 75 to 80 percent advance rates,” Mr. Sandy said. With insurance, if you’re at 70 percent and the insurance covers 90 percent, the bank can increase its advance rates. It’s better leverage of the same assets.”

Ms. Braun said even if a company didn’t need to borrow, the insurance could allow it to reduce the amount of money it needed to keep in reserve to cover bad debts.

There are limits, of course. A business will encounter one of those if it tries to insure only its worst credits, Mr. Freedman said. Most credit insurers reserve the right to bill for unexpected court costs, he said.

Mr. Eisenberg said he was in a situation several years ago where a billion-dollar company had filed for bankruptcy. Its lawyers were demanding that Mr. Eisenberg’s company, which has annual revenues of $2 million to $5 million, return money it had been paid.

“I tried to negotiate on my own, but I’m this little hole in the wall,” he said. “Because they were an extremely large company, they were able to come to me and say I had to return the money they had paid me in the last 90 days.”

Mr. Eisenberg would not disclose the company or the exact amount at issue, but he said it was “significant.” He was covered through a Euler Hermes policy, and he turned to the company to negotiate on his behalf.

“There was no way I could have done it on my own,” he said. “Some of the other companies that were small, they’re not around anymore.”

And their collapse surely affected their founders’ wealth.

Original Source: New York Times

January 2015 Coface Press Release

Posted by Buck Droppa on February 2, 2015
Posted in Corporate NewsProduct News 

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Coface Country Risk Outlook 2015: 

Laborious Global Recovery, Subject to Multiple Risks 

According to global credit insurer Coface, the global economy is on the path of gradual recovery. Global growth, while less vigorous than before the 2008 crisis, continues to follow a moderately accelerating trend, up +3.1% in 2015, after +2.8% in 2014 and +2.7 in 2013. Slight improvements are expected both in advanced countries (to +2.1% in 2015 compared to +1.7% in 2014) and in emerging countries (+4.3% versus 4.2%.)

Coface adjusted its country risk assessments. Sri Lanka was upgraded to B, while Czech Republic (A4), Portugal (B) and Vietnam (C) were placed on positive watch. China’s A3 assessment was placed on negative watch.

Advanced Countries: Fragile Recovery as a Result of Still-Constrained Investment in Europe

Coface is cautiously optimistic in its assessment of risks in advanced countries. In the United States, strong growth (+2.9% in 2015) is based on robust domestic demand and a real industrial renaissance, such as in the auto industry, where companies are running at 90% of their capacities. Companies are taking advantage of a multi-faceted reduction in costs, including lower energy costs linked to the expansion of shale gas and the fall in oil prices, but also limited wage increases. The steel industry remains the only sector where risk is considered high, while the chemicals, textile, transport and auto industries are classed in the moderate risks category.

Improvement is much slower in Europe, but it is perceptible. In the eurozone, growth should reach +1.2% in 2015 (after +0.8% in 2014 and -0.4% in 2013.) After the recent assessment upgrades of Spain, Germany and Austria, Coface today announced a new improvement: Portugal’s B assessment is now under positive watch. Emerging from its rescue plan, the country is expected to experience growth of +1.2% in 2015. The financial situation of companies is gradually improving, with recovering margins recovering and lower bankruptcy rates.

In France and Italy, the financial health of companies has also improved. Coface anticipates a rise in French company margins to 31.1% by the end of 2015, which is the same level as 2009, as a result of the implementation of the government’s ‘pact of responsibility’ and the fall in oil prices. However, companies will remain very cautious on investment decisions, due to the lowflation environment and growing political risks in the eurozone (uncertainty over the ability of governments to carry out reforms, and the growing popularity of parties hostile to the European Union.)

In Europe, cash retention behavior is at the heart of lowflation. The still heavy burden of public and private debt means a large proportion of revenue is used for debt repayment. And negative inflation, itself caused by this low demand, causes a rise in the debt’s real value. Consequently, the reduction in public and private debt maintains deflationary pressures and these same pressures complicate debt reduction. In this context, the proactive action of the ECB is crucial as a reassuring framework, both for companies and for households, to avoid the deflationary crisis. It will not, however, be sufficient to boost significantly the appetite for investment in the real economy.

After the sovereign crises, Europe has now discovered an opposite risk — that of conserving heavy debt that considerably affects the recovery and feeds deflationary pressures. Growth is also hindered by geopolitical events with still uncertain outcomes, primarily the Russia-Ukraine crisis. Lastly, the return of the political risk in Europe itself affects confidence. In this regard, the elections that punctuate 2015 will be important tests,” commented Yves Zlotowski, Coface Chief Economist.

Emerging Countries: Return of “Traditional” Crises, with a Few Fortunate Exceptions

While their growth remains strong overall, emerging countries are suffering from the return of traditional crises, with capital outflows and recurring tensions in exchange rates. The volatility of six fragile currencies since 2009 (Brazil, India, Indonesia, Turkey, South Africa and Russia) serve as illustration. The combination of an economic slowdown, rising private debt and repeated depreciations has led Coface to move several country assessments downward, including the most recent downgrade of Turkey to B (+3.5% in 2015) and Russia to C (-3.0% in 2015). It is worth noting that while companies are at risk, crises of a systemic nature are no longer the rule in emerging countries. Banks are stronger and public finances are solid. In brief, no large emerging country has had to call on the IMF in an emergency. Two Latin American countries, Venezuela and Argentina, have been particularly tested in 2014 by major external liquidity risks. In both cases, China has played the role of “purveyor of liquidity” in the last resort.

Several countries have distinguished themselves by favorable trends. Vietnam, whose C assessment is now accompanied by a positive watch, has stabilized its exchange rate, moved upmarket (as shown by the dynamism of its exports of electronic products) and attracted foreign investment, particularly Korean, despite a difficult business environment. Coface has also raised the assessment of Sri Lanka by a notch to B, because since the end of the war in 2009 growth has been strong and stable and the budget deficit has fallen.

China Placed on Negative Watch

For Coface, Chinese companies have entered into a danger zone, hence the decision to place the A3 country risk assessment of China on negative watch.

Companies face several challenges, the confirmed slowdown of 7% growth expected in 2015 and overcapacities in sectors including metals and construction.

NORTH AMERICA MEDIA CONTACT Sue Hinton, (212) 389-6484, sue.hinton@coface.com

Press Release 2015