Finding a bad debtor is a risk that both an entrepreneur and the CEO of a multinational can face. We spoke with Solunion, a Spanish company that has been promoting credit and surety insurance in Latin America for over a decade.
The expansion of SMEs at a regional level brings new challenges. For example, the abundance of supply on the market involves the temptation to sell products on credit to gain the loyalty of new customers. A 30- or 60-day agreement is negotiated to pay for the product, but there is always the risk that the promise remains just words.
To deal with this threat, in recent years, companies have emerged that provide credit and surety services for SMEs. In this way, if the client does not pay within the agreed period, the company covers this risk. In other words, it guarantees the SME that it will receive the money it is owed, either by charging the delinquent client directly or by paying the SME compensation.
In 2010, the insurance companies MAPFRE and Euler Hermes (now Allianz Trade) signed a letter of intent to offer Credit and Surety insurance services in Spain and Latin America. This idea materialised in 2012 with an alliance between the two companies and the following year, Solunion was founded, a joint venture owned 50% by each of the insurance companies as shareholders.
A decade later, Solunion has a presence in Spain and 17 Latin American countries. According to the company, it is estimated that by 2024, there will be 85 million companies in its database, 7,000 clients globally and 1,900 risk decisions made per day. Also, as expected, the pandemic brought accelerated digitalization in its service portfolio, but also the jump to coverage of medium and large corporations.
A POLICY FOR EVERY PROFILE
“In 2021, we launched a product focused on SMEs. We are talking about a tool with a fixed premium, without adjustments, which is managed through our website, covers the domestic market and also has a comprehensive debt collection service. But we also have services designed for medium-sized and multinational companies such as domestic credit insurance and for exports,” said María Inés Albornoz, commercial manager of Solunion in Chile for AméricaEconomía .
Albornoz is referring to the PY Policy, designed for SMEs, as well as the Innova Policy, aimed at medium and large companies. Although they also have other policies that cover sectors such as construction, energy, pharmaceuticals and agriculture, among others. One of the most recent is Midside, a policy designed to cover companies with operations in different nations around the world.
For example, if a corporation is run from Chile, but has subsidiaries in Peru, Argentina and Colombia, a global program is carried out at a regional level in which the conditions for the company are unified and are attended to by risk analysts and risk underwriters in the country of origin.
“This is a policy designed for companies that invoice between US$ 100 and US$ 300 million a year. If the client exceeds this income range, we consider it a multinational company and for them, we have the Multinational product, which is designed to insure the entire portfolio of these large corporations,” says Albornoz.
THE KEY TO SECURING EXPORTS
On the other hand, it should be noted that export credit insurance allows companies to know their business partners abroad, as well as guarantee compensation for losses resulting from non-payment of a loan. This applies as long as the conditions established by the policy are met. Likewise, private, political and country risks are covered. The latter refers to the difficulty with which importers deal with credit obligations as a result of political instability, shortage of foreign currency, among other factors.
“The current economic environment shows us that there are many companies that have become insolvent. Therefore, default rates are increasing and risk management must be improved. Having a comprehensive credit management strategy also includes benefits for companies to ensure sales,” says Albornoz.
In order to propose new products, the representative of Solunion states that they must be agile in interpreting the needs of clients. This does not only involve sales or traditional credit insurance, but also the functioning of contracts, markets and economic sectors. “So, we as an insurance company in general and a credit company in particular, have to anticipate and be productive in response to the requirements that arise,” she explains.
Furthermore, in order to maintain a constant presence at a regional level, Albornoz highlights that each country where Solunion operates has an analyst and a risk underwriter to evaluate customer preferences.
“Demand in each country will depend on the sectors in which each user is located. In other words, today, fruit exports during this season are very high. Therefore, it is also very important to know the markets and in the case of Chile, we are an export country where fruit takes on a relevant importance after copper,” adds the commercial manager.
