by Milind Jain ,
Credit Speciality Leader, Middle East and North Africa
11/09/2023 · 4-minute read
Many companies across the Middle East and North Africa (MENA) have experienced severe financial losses recently due to missed payments from customers. And according to the IMF, the risk of bad debt in the region is likely to loom for some time yet. Small non-financial firms in the region are forecast to remain under high liquidity stress in the medium term — putting large shares of their debt at risk of default.
To help them navigate this challenging landscape, companies can take out trade credit insurance. While these policies primarily protect a company against the risk of non-payment for goods and services, they also provide spinoff benefits that are perhaps less well-known, such as facilitating a company’s expansion into untested markets, improving access to capital, and increasing sales with existing customers.
Under a trade credit insurance policy, an insurer covers a company’s non-payment exposure. This will help the company in a number of ways:
Amid slower global economic growth, high energy prices, inflation, and higher interest rates, companies in the Middle East and North Africa are increasingly at risk of delayed payment or non-payment by customers based either in the region or in the UK, Europe, US, and Latin America where late payments have spiraled out of control in some sectors. In the UK for instance, 52% of small businesses experienced late payments in 2022.
In order to protect themselves against bad debts, information is key. Companies should lean on their insurers and relevant information providers such as trade associations and professional bodies to perform due diligence on partners ahead of providing them with goods and services. Some insurers, for example, run risk workshops, where they give an assessment of the performance of their clients’ partners. Companies should also follow closely shifts in risks in the countries and sectors where they do business.
Companies should consult a broker to make sure they have the most suitable insurance coverage in place and are taking all measures available to mitigate their trade credit risks.
For more information on trade credit insurance, please contact your Marsh adviser.