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How machine manufacturer Kiremko minimizes financial risks?

As a manufacturing company you might secure a big order, but the deal is only truly successful if the customer actually pays after delivery. Machine manufacturer Kiremko relies on its trade credit insurance when it comes to large, multi-year orders.

Kiremko manufactures processing lines for the potato processing industry. Using the Montfoort-based company's machines, customers produce such products as chips, rösti, potato flakes and mashed potatoes.

The processing lines of Kiremko, founded in 1965 (180 employees, 2020 turnover: €59 million) find their way to customers all over the world, says project finance analyst Michelle Verlaan. 'There are only three similar turn key suppliers worldwide, who carry out all work in-house – from the initial design to installation on location at the customer. To optimally serve our customers, we have branches in China, India, Russia and the United Kingdom and we maintain a global agent network.'

Assessing financial risks

The projects that Kiremko carries out often have a long lead time, and an order usually involves millions of euros. So it's not surprising that Kiremko thoroughly researches the financial risks involved in a project beforehand, says Verlaan. 'As a project finance analyst, I maintain close contact with our sales department. What projects are coming up? And what is the creditworthiness of the customer in question? It is important for us to get a complete picture of the project, the customer and the country in advance, so that we can assess financial risks as early as possible.'

Non-payment is the biggest risk

The biggest financial risk is non-payment, Verlaan outlines: "Given the generally multi-year duration of projects, most customers pay in instalments. As a supplier, you naturally want to be certain that a customer can continue to meet its payment obligations throughout the entire term."

"At the same time, the customer naturally wants to be assured that we actually deliver what we agreed on. With every project it is important to find the right balance."

Economic and political risks also play a role

The risk of non-payment is divided into several sub-risks, Michelle Verlaan explains. "There is the economic risk; if the economic situation in a country suddenly deteriorates, this may mean that your customer can no longer meet its payment obligations. But currency fluctuations can also affect your customer's creditworthiness."

"There are also political risks. One country is simply more stable than the other. If the political situation in a country suddenly changes, this may affect the extent to which your customer is able to pay. Natural disasters and wars can also leave you as a supplier empty-handed."

A trade credit insurance provides security for longer term projects

In her role as a project finance analyst, Verlaan maintains many contacts with banks and credit insurers: "To cover risks, we often opt for an international bank guarantee or a letter of credit. Another option that we often use, especially for longer projects, is our existing trade credit insurance. We have been calling on the services of credit insurer Allianz Trade for a trade credit insurance for some time now."
michelle-verlaan-kiremko

A practical example

"Recently we received an order from a customer in Italy, who, among other things, produces chips for large fast food chains. At the time the order came in, these fast food chains in Italy were closed due to the corona pandemic - with no indication of when they would reopen. Moreover, this customer had just had a large new factory hall built.

For us, on paper, there were some uncertainties and risks associated with this order, especially considering the relatively long lead time of 2.5 years. To cover the debtor risk, we then apply for a credit limit on the debtor in question. In this way, a trade credit insurance offers us payment security if the customer in question is no longer able to meet its payment obligations."

Switch quickly & extra security with Allianz Trade

Kiremko's Italian customer appeared to already have a relationship with Allianz Trade in Italy. This made it possible to switch quickly in this case, says Verlaan. "In any case, our own lines with Allianz Trade are short. To win an order, you sometimes have to be able to act quickly. Our regular contact person at Allianz Trade is always ready in the background to assess the creditworthiness of a potential buyer with us. We then decide together how we can best cover the specific risks. That works very well, and we were also able to move quickly with this customer."

To cover the risks in this specific case, Kiremko took out a so-called Cover One trade credit insurance policy with Allianz Trade: a trade credit insurance policy with coverage of a maximum of three years and with a fixed credit limit. In this case, the credit limit provided extra security, Verlaan outlines. "With regular trade credit insurance, the credit limit – the maximum amount for which you are insured – can be adjusted in the meantime if circumstances change. The fixed credit limit offers us the extra security we were looking for for this specific project."

Also interesting for our customers

This construction also offers more security for the customer, Verlaan emphasizes. 'They can rest assured that we will actually deliver thanks to this payment security. With a project of this size, it is not always possible or desirable - from the perspective of both the supplier and the buyer - to pre-finance the full amount. With this solution from Allianz Trade we have now found a good balance, with certainty for both parties.'

Do you want to know how a trade credit insurance can help you?

A trade credit insurance helps you and your company. It provides peace and security for entrepreneurs. How? With a trade credit insurance, you know that your invoices will be paid.

Your company maintains financial health through well-organised accounts receivable management. And your cash flow is protected as well. With a customer check in advance, you know precisely which opportunities you can seize. And that works out well.