Credit Insurance – An inside story

By Neil Botting

To help provide a more detailed insight into the broader function of credit insurance and the business benefits, the best way is to look at a real organisation and see it in practice.

Trade credit insurance is not a new concept as the first incarnation of the principles appeared more than 85 years ago with the founding of NCM in the Netherlands, which subsequently went on to become part of the global credit insurer Atradius.

Since those early days, the global commercial environment has changed almost beyond recognition, yet credit insurance has continued to be a vital component for many businesses, helping protect them from many of the risks associated with international trade, while allowing them to explore potentially lucrative new markets and opportunities.

While credit insurance is probably best known for protecting businesses from the risk of debts caused by customers’ non-payment, as a result of insolvency, protracted default and even political intervention, the scope of its influence and benefits to business are considerably wider.

To help provide a more detailed insight into the broader function of credit insurance, the business benefits and the roles of the insurance broker and the credit insurer, the best way is to look at a real organisation and see it in practice.

Understandably, many businesses tend to be quite guarded of their credit insurance and management processes, so our thanks must go to the Westcon Group, as well as their broker, Aon and insurer, Atradius, for allowing us to explore not only their respective organisations, but also their business relationship.

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While the core principles of credit insurance are the same no matter what the size or type of business, to ensure that the breadth and depth of cover meets the precise needs of each business, there is a high level of tailoring required to account for a range of variables. These typically include trading region and country, the risk profile of individual customers and the level of credit required.

As every business has its own specific requirements, particularly those trading in multiple international markets, to fully understand the role of credit insurance within Westcon, it’s also necessary to be familiar with the organisation and its own trading environment.

The Westcon Group is a major multinational distributor of technology products focused on the fast moving sectors of networking, communications and telephony as well as network security, video conferencing and mobility.

Westcon’s customer base includes value-added resellers, systems integrators and service providers that resell products and solutions to small and medium sized businesses, enterprise organisations and governments around the world, which it serves using products from a number of leading IT manufacturers.

To provide a coherent focus on its key sectors, the business is organised into three divisions. Westcon Convergence provides business telephony and video conferencing solutions while Westcon Security undertakes a similar role with network security solutions. The third division, Comstor, is a solution dedicated to Cisco networking and advanced technology.

With a presence in more than 35 countries covering the Americas, Europe and Asia Pacific, as well as a number of emerging markets and regions, such as India and MENA, the company generates annual revenues of around USD 3 billion (EUR 2.1 billion).

Around 35% of this turnover comes from its business in Europe, where sales stand at around USD 1.1 billion (EUR 772 million) generated by its growing presence within the EU, where it already has operations in 10 countries.

Interestingly, Europe is also the main region where Westcon uses credit insurance and the associated credit management services provided by Atradius in conjunction with global risk management service provider and insurance broker Aon.

“Our relationship with Westcon began around 12 years ago, when one of our clients, already insured with Atradius, was acquired by Westcon,” explained Aon’s International Client Director, Ana Sibun, who heads the team responsible for Westcon’s international business.

“At this time, we began working more closely, both with Westcon UK and Comstor UK, as they grew their business and developed a broader customer base, requiring their credit insurance cover to be extended by Atradius and made more flexible to meet the dynamic nature of Westcon’s business,” she added.

Westcon’s continued drive for growth, along with its desire to build a much greater presence in Europe and reinforce key parts of the business with complementary technologies, meant that further acquisitions were made to achieve these aims.

Unsurprisingly, some of the newly acquired businesses already had credit insurance in place to cover their own customers. This meant that there was a pressing need to harmonise the credit insurance disciplines across all businesses, as the different insurers now covered different parts of the Westcon as a result of the acquisitions.

“Credit insurance enables us to trade with confidence with a growing range of customers in an increasingly diverse geographic market place.” Henk Keijzer, Westcon Europe.

Henk Keijzer, Treasurer/Credit Insurance Manager for Westcon Europe, explained: “Credit insurance is an essential part of our business as it enables us to trade with confidence with a growing range of customers in an increasingly diverse geographic market place. At the time we made these acquisitions, Aon was already working with us closely and Atradius was meeting our primary credit insurance needs, yet it was important for us to review our requirements. We needed to use a single insurer to gain economies of scale as well as a consistent set of credit management procedures that could be put in place across the whole of our European business. Aon created the European brief in conjunction with us and once again, we selected Atradius over other providers as they provided the best package that most closely met our needs.”

With harmonised credit insurance and uniform credit terms and conditions, the credit management processes could be replicated across every part of the Westcon business in Europe, bringing a high degree of consistency along with the economies of scale that formed part of the original brief.

“While credit management consistency was an important aim, one of the key factors as to why Westcon selected Atradius was its international service structure.” Ana Sibun, Aon

Aon’s Ana Sibun added: “While credit management consistency was an important aim, one of the key factors as to why Westcon selected Atradius was its international service structure.  Atradius offered local specialists for all of Westcon’s key markets which, complemented by Aon’s own international network, brought direct support for subsidiaries with the benefit of feeding in to a central strategic hub. This not only makes central policy decision making and monitoring more effective and efficient, it also allows a high degree of versatility while ensuring that credit management at a local level is handled by teams that are familiar with local business practices, cultures and language. It also enables a high degree of operational integration between Westcon, Atradius and Aon to provide a robust credit management process. Another area where this strength is of significant benefit is in debt collection, which forms part of the Atradius service to Westcon. Again, by using an international collections service with local offices, collections activity is tailored to suit the local conditions and legal practices. While Westcon has its own teams in each country that handle the bulk of the collections activity, once debts become more than 60 days old, they’re handed over to Atradius, so there is a clear process in place that uses the respective strengths of each organisation.”

One of the key roles of credit insurance is to enable companies to trade effectively on credit terms with customers that have an agreed credit limit. For every customer, a credit limit is agreed that allows goods and services to be provided within that limit simplifying the trading relationship and often allowing goods to be supplied more quickly than if pre-payment, LOC’s or other trading methods were used.

Will Jones, Westcon’s dedicated Account Manager at Atradius, commented: “Every one of Westcon’s 4,500 customers has its own credit limit, which is created based on a range of financial, geographic political and macro-economic factors as well as, business sector risk and even the strength of the management team. For Westcon, it’s absolutely vital that we analyse every facet to ensure the credit protection provided by our Global policy is sound and reflects the constantly changing nature of companies and countries, wherever Westcon trades.”

Westcon’s Henk Keijzer regards this as a core part of the credit management procedures within the company. He said: “It’s vital for us that we don’t expose ourselves to financial loss by trading outside the limits of our cover, so our communications processes are highly developed to ensure this doesn’t occur. Atradius is constantly monitoring changes in a range of variables so that the limits always reflect the true situation. As part of their monitoring processes, their local teams undertake regular customer visits to gain first hand knowledge and more detailed information, which usually has a positive benefit to us and our customers.”

He added: “While intelligence gathering and vetting is an ongoing process when we acquire new businesses, it creates a significant peak of activity as it’s important that we can trade safely and profitably with the customers that were previously trading with the newly acquired business. In most cases, Atradius and Aon work extremely closely together to develop solutions that will enable the maximum opportunity to be retained, although, where risks are too high, on very rare occasions, we have to accept that we can’t trade on credit with some businesses.”

For smaller companies, the credit insurance broker can be seen very much as an advisor and a route to ensuring the most cost effective policy in terms of cover and service.  However, for multinational businesses with complex needs and strategic objectives, the broker, plays a highly integral part in the design and placement of a solution. This is a key factor in the relationship as Westcon regards Aon as a vital business partner.

The banks require us to provide payment security via our credit insurance policy with Atradius. As a result, this significantly reduces the risk of non-payment, which allows us the opportunity to negotiate preferential rates. Henk Keijzer, Westcon Europe

“Aon’s involvement with our business is quite simple in principle,” continued Henk Keijzer. “It is to always represent our best interests, which is a role that they undertake extremely well. As a result, through their expertise, support and international experience, we have been able to take advantage of opportunities that might not otherwise have been available to us. They also have an extremely close working relationship with the Atradius team at all levels, which means that there is a tremendous synergy between our three organisations as well as shared objectives and a high level of flexibility.”

Will Jones of Atradius also recognises the special three-way relationship that exists between the companies. “From our perspective, the customer is always our primary focus as it is their business we are insuring and their funds that pay the premium, yet the relationships we have with our customers’ brokers is a vital ingredient to ensure they receive the best service. In Westcon’s case, Aon provides a multi-faceted role to ensure that their constantly evolving business needs across Europe are always met by Atradius.”

He added: “Possibly, one of the most valuable roles that Aon provides is that of an arbiter, where their independent perspective and understanding of the client’s needs have enabled us to work in partnership with Westcon and develop effective and often innovative solutions to resolve any key issues. Working together in this way, we have both enhanced our knowledge of delivering effective solutions for multinational clients allowing us to successfully share and replicate some of them with other businesses.”

The close relationship between Westcon, Aon and Atradius not only has a positive impact on the communication and operational aspects of the business, but also in terms of the service and response times that are achieved.

Will Jones explained: “For all our Global customers, we set ourselves the highest standards to ensure we can support our customers effectively. This means delivering credit limits promptly whilst also providing extensive background information on our decisions in order to help our customers identify opportunities and highlight any potential issues. If a bad debt is incurred, we provide our clients with tailor made debt recovery and claims handling services as it is vitally important we support our clients from the beginning to end of their entire credit process.”

While service levels are an integral part of the client relationship, the core of Atradius’ role within Westcon is to ensure that the company is protected in all its trade activity within Europe. Yet the benefits to Westcon of effective credit insurance extend beyond trade protection, as Henk Keijzer explains. “Another key facet of our credit management processes is that as we have a factoring service in place to maintain cash flow and speed payments, the banks require us to provide payment security via our credit insurance policy with Atradius. As a result, this significantly reduces the risk of non-payment, which allows us the opportunity to negotiate preferential rates. Also, as our claims ratio is very low, we can demonstrate that our customers are good payers and our credit management procedures are effective and robust, all of which supports and reinforces our business.”

With credit insurance running like a thread through the core of Westcon’s European business, it is apparent that it provides additional strength to the company, a fact endorsed by Henk Keijzer. “Perhaps the over-riding benefit of credit insurance to us, beyond the protection, the financing support and the excellent relationships we have with Aon and Atradius, is the fact that it enables us to do business and take advantage of opportunities as they occur.”

He added: “Perhaps the best way of viewing its value is to consider what changes we would need to make as a business, if we didn’t have credit insurance in place. The simple answer is that it would be much more difficult to operate internationally and we would need to take on more staff to perform the credit control functions and customer vetting services currently performed by Atradius on a Pan-European basis.”

“Add to that, the fact that we would probably not be able to operate the factoring service to the level that we need and it’s clear that the impact on the business could be significant. This is why we take great care in every part of our organisation to ensure our trade risks are managed constantly so we can continue to take advantage of the opportunities available and remain innovative to develop new markets and grow.”

About the author

Neil Botting is an independent writer specialising in credit insurance and business.

For more information about Atradius visit: www.atradius.com

For more information aboutAON visit: www.thehub-aon.co.uk

For more information about Westcon visit: www.westcongroup.com

 

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