Exporters shun insurance despite rise in bad debt

Exporters are shunning credit insurance despite figures showing a sixfold increase in the number of companies experiencing difficulties with payments.

A survey conducted by the UCD Centre for Financial Markets on behalf of the Irish Exporters' Association found that three out of every four exporters offered credit facilities to their export customers. Ninety per cent of those surveyed had difficulties with payments last year, compared with only 15.3 per cent the previous year. Two out of every five suffered non-payment of debt.

"The non-payment is due to a reduced use of payment in advance and an increased use of open accounts due to increased competitiveness," said the survey's author, John Cotter.

Mr Cotter said it was surprising that, in spite of such risks, many firms still failed to protect themselves against currency risk.

"For instance, 82 per cent of exporters do not use credit insurance saying that it is too expensive, and also citing a lack of understanding of what the product provides," he said.

Minister for Finance Brian Cowen welcomed the survey and said it was particularly relevant to the financial services sector. "One survey finding of particular concern is the persistence in the growing trend of bad debt in foreign markets, and the relatively small reliance by exporters on credit insurance.

"There is apparently a mismatch between products and policies available to decrease bad debt default and the perceived value by exporters in the available products," said Mr Cowen.

Although most exporters invoice in sterling or dollars, over 10 per cent of exporters have no risk management procedures in place for non-euro trade, according to the survey.

It found that 75 per cent of trade with the US is denominated in dollars, while 67 per cent of trade with the UK is conducted in sterling.

Among exporters with some form of currency management, a currency account was the most popular option - practised by 37.5 per cent of exporters.