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Finnvera and the Chamber of Commerce: Typical credit loss of export companies approximately 30,000 euros – Credit losses still a hindrance to export

Finnish export companies, especially SMEs, conduct export trade at an alarmingly high risk, taking into account that a deal of 100,000 euros can be hedged with insurance that costs 500 to 1,200 euros. Companies may have false impressions about the cost of hedging.

05.06.2019

Inadequate financing skills and credit losses still slow down the growth of Finnish exports and export companies. The typical credit loss suffered by export companies averages 30,000 euros. This is the finding of the export trade financing barometer commissioned by Finnvera, Finland Chamber of Commerce and the International Chamber of Commerce. Such credit losses are relatively large in view of the average size of export trade transactions: under 100,000 euros for most companies. The good news is that nearly one third of export companies have a written credit policy in place, which defines the limits of credit risks allowed in trading.

Of the 600 or so companies that answered the barometer, under half had reported export credit losses in the past few years. Responses were obtained from some of the country’s largest export companies as well as from SMEs involved in export. The largest single credit losses averaged as much as 100,000 euros, largely due to a few individual major losses. The companies have recorded these setbacks as lost assets and write-downs. According to nearly a fifth, credit losses had not had much of an impact on the company.

“Finnish export companies, especially SMEs, conduct export trade at an alarmingly high risk, taking into account that a deal of 100,000 euros can be hedged with insurance that costs 500 to 1,200 euros. Companies may have false impressions about the cost of hedging. This has also come up during the export financing tour organised in the past year. We still need to raise awareness of risk management and build export financing competence, since credit losses amounting to tens of thousands of euros can topple a company or at the very least erode its profit needlessly,” says Pauli Heikkilä, CEO of Finnvera.

The export financing tour, which took place last autumn and this spring and was organised by Finnvera, Finland Chamber of Commerce, banks and credit insurers, emphasised the importance of financing, risk management and credit policy. In fact, credit policies are now more common in export companies than a year before.

Potential increase in buyer financing

The barometer, which was conducted for the first time a year ago, indicated that Finnish SMEs most likely fail to secure export transactions because they are not familiar with the various financing solutions available to buyers. Both this and last year, around 100 of the companies that responded to the barometer reported that they had failed to close important export transactions. Last year, 39 per cent of these companies said this was due to the buyer not obtaining financing and 11 per cent said the buyer had secured financing on better terms from a foreign competitor. This year’s results improved in this respect, but 28 per cent still reported that the buyer had not obtained financing and 4 per cent reported that a competitor had offered better terms for financing

“This shows positive development. Finnish export companies may have been more successful in offering trade financing, in addition to good export products, to foreign buyers. We know that buyer financing is often a condition for securing deals, even in the case of large export companies. In the past year, we have emphasised the importance of financing competence to SMEs. Nevertheless, many companies still consider buyer financing to be unnecessary,” says Heikkilä.

Export plans affected by trade war threats and the uncertain global economy

Current news about the threats of trade wars and uncertainties in the global economy have affected export plans to some degree. One quarter of the respondent companies said these aspects had set back exports and possibly led to deals being cancelled or postponed. Nearly the same number said that Brexit and the uncertainty it has caused in Europe had made trade with the UK or other EU Member States more difficult.

Sweden and Germany are still the main export countries. Russia’s position among the top export countries has weakened slightly from the previous year, as has China’s.

“Around one quarter of the companies find that uncertainties related to financing curb interest in doing business in Russia. Sanctions interfere with financing arrangements, for example. The situation is weakest in Iran, where financing has come to a total freeze,” says Timo Vuori, Chief Executive of the International Chamber of Commerce (ICC) in Finland and Executive Vice President, International Affairs, of the Finland Chamber of Commerce.

According to Vuori, the increasing global trading power of China appears to be of some concern to Finnish exporters. Some of the companies have been exposed to unhealthy competition and protectionism in the Chinese market.

“The majority of companies see more opportunities than threats in China, but many do not have a clear opinion on the country.The Chinese markets are clearly of interest, but various risks, both old and new, are a threat to business,” Vuori believes.

However, the fact that rapid growth in the Finnish economy has levelled out apparently has not scared off companies. Only some eight per cent of the respondents said this had reduced their interest in new export projects and investments supporting them.

The survey was conducted by Taloustutkimus, commissioned by Finnvera, Finland Chamber of Commerce and the International Chamber of Commerce ICC, with an online survey and telephone interviews in April–May 2019. The survey was taken by 596 Finnish enterprises involved in direct export trade. In these enterprises, the share of exports in total turnover is on average 45 per cent and the average annual export turnover of three of every five respondents is on average ≤ EUR 5 million.

Further information:

Pauli Heikkilä, CEO, Finnvera, tel. +358 29 460 2400, pauli.heikkila@finnvera.fi

Timo Vuori, Chief Executive, International Chamber of Commerce in Finland; Executive Director, Finland Chamber of Commerce, tel. +358 50 553 5319, timo.vuori@chamber.fi

Read also: Finnvera and the Chamber of Commerce: Finnish enterprises fail to close deals in export trade – financing options not well-known (June 13 2018)

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