Insurers are better than rating agencies at determining companies’ credit worthiness, says Aon
Credit insurers have taken over the mantle from ratings agencies in determining UK companies’ credit worthiness, according to Aon Trade Credit.
This shift in power means that businesses’ have to work with credit insurers – which provide suppliers with cover against bad debts – to ensure that they have sufficient insight to enable credit lines for their key suppliers.
Credit ratings agencies play an important role in identifying a company’s financial strength. However, insurers are one step ahead as they use both historical data and up to the minute payment/ key management information, said Aon. Credit insurers also assess companies of all sizes, not just the large corporations that have been the primary focus of the rating agencies.
In light of increasing levels of insolvencies, credit insurers are being much more stringent and thorough in assessing a company’s creditworthiness. This has resulted in a reduction in cover in volatile sectors such as construction, retail and automotive.
Stuart Lawson, head of Aon Trade Credit in the UK, commented: ‘The key is not to see this as an unnecessary intrusion but view information requests from insurers as a positive step to enable credit lines to be maintained or even increased. If a major customer becomes insolvent, your own business could be compromised if you haven’t or were unable to take out insurance to protect against such an event. It illustrates the growing influence and importance of credit insurers in the health of supply chains and reinforces the benefits of working in partnership with them.’