Trade Credit Insurance Presentation 2015 Finance Ministers’ Process (FMP) Conference on Reforming the Asia-Pacific Financial Infrastructure Panel - Manila 12 November 2015 Douglas W. Barnert Barnert Global, Ltd.

What is trade credit insurance? Basically it’s insurance to protect you against bad debt. If your customers fail to pay, the insurance kicks in ensuring you’re not left with a cash flow problem. However, it’s not just about risk transfer. Trade credit insurance also facilitates growth. As part of your risk analysis process, it helps by giving you more detailed profiles of your customers, allowing you to develop an understanding of markets where growth is an option, underpinned by the confidence that your invoices will be paid. The risks of customer insolvency, or protracted payment defaults, are covered, which may also enable you to negotiate more favourable terms with banks and financial institutions. Foreign invoices are more likely to go unpaid due to the complexity of payment procedures. 2

Unsure if you need trade credit insurance? Answer the following questions to find out. Do you sell goods or services on a business-to-business basis? Do you provide credit terms to your customers or have you considered doing so? Would you like to improve your days sales outstanding (DSO)? Are your sales concentrated on a small number of key customers? Would non-payment by a customer have a detrimental impact on your financial performance? Do you plan to expand into new markets, sectors or countries? If you answered “yes” to any of the above questions, trade credit insurance could improve your cash flow, profitability and growth capacity. 3

The main reasons for payment delays in Asia Pacific The primary reason given for payment delays in Asia Pacific is insufficient funds, according to 47.3 percent of businesses. Other reasons included the following: 1.Disputes over the quality of goods delivered or service provided 2.Goods delivered or service provided didn’t correspond with what was agreed in the contract 3.Complexity of the payment procedure 4.Inefficiencies of banking systems 5.Incorrect information on Buyer using outstanding invoices 6.Debts/invoices as a form of financing 7.Formal insolvency of the buyer 8.Invoice was sent to the wrong person 4

Who buys trade credit insurance? Trade credit insurance is relevant to all businesses and all markets. In short, any company exposed to business-to- business credit risk, through the sale of goods and services on open account credit terms, can benefit from trade credit insurance. The product is suitable for companies of all sizes from the largest multinationals and corporates to start up SMEs. Organisations that export and / or avail themselves of trade finance facilities offered by banks are particularly likely to benefit. 5

In Action Flexibility of open account terms without undue risk taking A major commodities exporter in Singapore, trading with a Chinese customer on secured letter of credit terms, was coming under increasing pressure to extend 90-day credit terms. The customer wanted more flexibility to manage their cash as well as reduce letter of credit costs. A single customer trade credit insurance policy was created to protect the exporter against non-payment and introduce a leading local bank to finance the receivables. This enabled the exporter to extend attractive and more competitive terms to their customer, while mitigating payment risk. They were also able to improve their cash flow via an insurance- backed receivables finance solution, and the payment method was more cost- effective and flexible. 6

Six reasons for purchasing trade credit insurance Put simply a sale is not a sale until it’s paid. With trade credit insurance you’re protected against losses that affect your business results, even if your customer can’t pay. Essentially, your business can benefit from: 1.Risk protection & business continuity Any business providing goods or services on credit terms is exposed to credit risk and the possibility of non- payment. Bad debts can have a detrimental impact on the financial performance of a business, affecting profitability, margins and cash flow. Trade credit insurance transfers the risk of non-payment from your balance sheet to the insurer, ensuring that in the event of bad debt the balance sheet is not adversely impacted. 2. Credit management & information A trade credit insurance policy supports and enhances the credit management function of an organisation by providing access to rich and vast customer information and expert risk intelligence held by insurers. This information can be used to make informed credit management decisions, and be integrated as another supplementary check within existing practices. Credit management and collection can be outsourced to the insurer. 3 Finance Trade credit insurance is widely recognised by banks and financial institutions as a credit risk management tool, enabling you to secure access to facilities (and in some cases preferential rates) by providing the insurance policy as security to the bank. Banks can be added as loss payees to a trade credit policy, enabling claims to be paid to a relevant institution. 7

Six reasons for purchasing trade credit insurance 4Open account trade A competitive edge can be created through trade credit insurance, by enabling your business to move from selling on secured terms (for example, a letter of credit) to unsecured open account trade. This also helps to develop relationships and enable more favourable pricing. 5Sales growth Trade credit insurance supports sales growth, particularly when entering new markets or looking to extend credit limits in excess of internal comfort levels. The policy can be used to identify customers suitable for open account trade and help to develop your sales strategy in the most competitive and efficient way. 6Corporate Governance Although due diligence can help you identify some customers with bad debt, it’s not a guarantee. Trade credit insurance gives stakeholders and investors peace of mind, protecting them against the risk of unforseen losses. 8

Questions? ? 9 Thanks to AON. Source: Atradius Payment Practices Barometer for Asia Pacific