Tips for SMEs on how to ensure protection for future risks

The unprecedentedd global economic blow posed by the coronavirus disease (COVID-19) has opened our eyes to the importance of getting protection against future risks. For SMEs, experts believe such business coverage is beyond crucial to ensure sustained growth and business continuity, especially as they are the ones that have taken a much harder hit from the impacts of the disease.

Prior to the pandemic, SMEs are constantly already at risk due to their low chances of survival. In the data released by US Bureau of Labour and Statistics, the lifespan of SMEs decreases as the years pass by, from 80 per cent on the first year, to 50 per cent on the fifth year, down to 33 per cent on the 10th year. This means that only about one in three small businesses get to the 10-year mark and live to tell their story.

Despite this, however, the importance of SMEs in the sustainability of the global economy cannot be stressed enough. According to World Bank, SMEs represent about 90 per cent of businesses and more than 50 per cent of employment worldwide. In the UAE, data released by the Ministry of Economy revealed that the SMEs sector represents more than 94 per cent of the total number of companies operating in the country, as well as provides jobs for more than 86 per cent of the private sector’s workforce. These small businesses also make up for about 52 per cent of the country’s non-oil gross domestic product (GDP).

Such figures only reflect the value of SMEs to global trade, a reason their recovery must be put at the focal point of every nation’s economic priority.

To ensure a prosperous comeback and attain a competitive swing in global trade, here are some of the recommendations of Etihad Credit Insurance for SMEs:


Protect your cash flow through Trade Credit Insurance (TCI) 

Cash flow interruptions such as payment delays and defaults from key customers can have a big impact on a business; they are at a higher risk of profit loss and debts. But with the support of TCI, SMEs can continue their operations without worrying about the unpaid invoices.

And as it remains committed to support the SMEs in the UAE, ECI ensures their competitiveness in the international markets through its bespoke TCI policy. This product helps SMEs do business with confidence during these challenging periods as it shields businesses against losses due to non-payment of a customer as well as provides better access to liquidity.


Explore the option to extend better Open Credit Terms and Limits

Through this option, ECI will guarantee the exporter access to better funding through its strategic partnerships with banks, covering business deals of huge amounts, thereby allowing the UAE-based business to export products in the international markets on open terms—meaning, there is no limit to the amount of the transaction’s value. When buyers are given open credit limits, UAE companies have more business opportunities, resulting in their growth


Constantly expand your global presence in developing nations

The key to growth is to constantly expand even in nations that are still considered developing. While it presents complicated uncertainties, ECI helps mitigate these threats through TCI. To strengthen its risk mitigation strategy, ECI even allows SMEs to bundle the TCI product with political risk insurance to help them trade with confidence despite the political risks in the host country.


Leverage on Better borrowing terms and market information

ECI’s products help SMEs better negotiate the funding cost since the receivables are secured and protected. They can use the information and knowledge of the federal export credit company to confidently arrive at decisions based on solid risk mitigation standards.


Enhance your credit management procedure 

Having a solid credit management procedure is crucial to guarantee uninterrupted business progress, as well as minimise risks while maximising opportunities. ECI’s TCI helps improve SMEs’ credit management procedure through leveraging their accounts receivable.


Know the laws and regulations of your export markets

The lack of information can put a dampen on a business’ export operations. ECI’s huge database of and reports about the business climate of countries across the globe can help SMEs penetrate new markets with confidence.


Make sure all necessary paperwork is complete and accurate

Ensure that all the paperwork needed in your export operations are done appropriately and accurately. If there are documents that are unclear, consult with a legal expert.


Establish good relationships with customers

Having a good rapport with the customers is key to the success of SMEs; without it, even a small misunderstanding or pressure can jeopardise the relationship. ECI advises to have an open and frequent communications with the clients. Especially in situations where there is non-payment, it is important to deal with appropriate communications patiently.


Document every communication

The best way to protect your business and agreements is to ensure all communications with the customers are documented.


Try to understand the behaviour of your customers

Look for any early signs of late payment, triggers, or point of alerts. If your customer is frequently asking to extend the due date, it means they have cash flow problems. if they stop responding to calls or emails, this is an early sign of alert.

It is only through awareness regarding their behaviour can a business fully strategise the necessary solutions to improve its operations.


Always cheque your customers’ credit management processes

Is your customer’s day sales outstanding (DSO)—a calculation used to estimate the size of a company’s outstanding account receivables—strong? If the DSO is higher than the normal payment terms, this means they are bad in their collection of payments. This will have cascading effect on you as an exporter.

If there is any change in the order amount or a sudden demand to increase the order, this is a sign of a problem that should be dealt cautiously.


Be proactive in cash flow management

Always focus on the best practises and proactive approaches to protect your receivables, such as partnering with ECI for its bespoke credit insurance solutions.


Focus on monitoring overdue receivables

SMEs should focus on processing the invoice and monitorong receivables when they have become overdue. The conditions on the sales contract should be cover the late payment issues.