Why sharing financial data is key to building your business

Trade credit makes the business world go around. For the customer on the receiving end of the deal, it’s an important source of financing. This zero-interest ‘loan’ helps to keep operations going in times of high activity, and provides a boost to smaller businesses that don’t have access to sizable loans or other funds. To the company extending credit, the practice means being able to do business with more clients—including those that can’t offer funds up-front—and building customer loyalty. 

This relationship relies heavily on trust. But that is not to say that companies should trust their customers blindly. Before signing a contract to extend credit, a company should always complete a thorough review of its customer’s credit history and run a  credit analysis. The problem is that proper financial information on a customer is often difficult to obtain. 

In many countries, private companies are not required to publish financial statements and other data. And even in countries where this obligation does exist, small- to medium-sized enterprises (SMEs)—those who are most likely to need trade credit—tend to be exempt. The result is that a business looking to extend credit often has only ‘soft’ company information to go on in completing a credit analysis on a customer. These can include general insights on the customer’s sector and, in export transactions, any geopolitical factors that could constitute a political risk. However, that’s usually not enough to construct a complete picture of a company’s finances. Without adequate information, the transaction can be stalled and the credit may be lowered or denied. Furthermore, if the company extending credit wishes to cover the transaction with insurance, a policy will be hard to obtain without adequate information.  

In order to obtain trade credit insurance, a company must do its due diligence in performing a credit assessment. Then, the company will ask for a credit limit from the credit insurer. At that time, the insurance company will perform its own due diligence based on available information, and seek proprietary information by contacting the company’s customer. All in all, the credit insurance company will aim to produce the most accurate credit rating and provide the maximum-available cover.

I have worked in credit analysis at Allianz Trade for over 10 years, and part of my current role is contacting our clients’ customers to ask for financial data and other qualitative information. When I contact these companies, what I’m really seeking to do is explain the benefits of financial transparency on their end and give insight into how we work.

A company that refuses to disclose financial information may have something to hide, such as a negative performance. But more often than not, it simply comes down to that all-important question of trust: a fear of sharing in-depth details with a third party. And what usually helps in this case is explaining what information we use, and how. Insurers need financial statements as well as qualitative data, such as the strategy that the company follows and its market position, as well as the quality of the customer’s portfolio. With this information, insurers can develop a credit rating that will hopefully enable them to insure a sale up to the requested limit. And sometimes, providing a complete financial picture can enable a customer to negotiate more advantageous terms with the company we insure. 

When our clients’ customers understand how disclosure of information can financially help the business, the process is usually much smoother and quicker. 

At the end of the day, all parties benefit from sharing financial information openly. It enables the insurer to underwrite more efficiently, which can further strengthen a customer’s reputation in the industry in addition to helping them obtain a higher credit limit if possible, and speed up the sale for company seeking insurance. 

This is what my team works to raise awareness on: working with Allianz Trade means having a third party on hand to build a trusting and mutually beneficial relationship with your customer, where information is shared openly.