Another German success story

BCR Factorscan 22/07/2010

Roberto Weckop, Director International and HR at Eurofactor in Germany, talks to Factorscan about Eurofactor Germany’s recent FCI awards, the reasons behind its ongoing success in the international field, the importance of close communication with correspondents and clients and why having two credit insurers can be a significant benefit when it comes to acquiring cover for international operations.

Best in (FCI) show

Eurofactor Germany was recently awarded Import and Export-Import Factor of the Year by FCI at its recent award ceremony, and so the conversation begun by asking under what criteria Eurofactor had won the award. As Weckop made clear, there are two main criteria to the FCI awards, each of which is further broken down into a more in-depth analysis of service provision. 40% of the assessment relates to volumes and the number of correspondents, Weckop explained. The remaining 60% is divided between acceptance of business, the ability to provide prompt limits and pricing; the service provided in terms of collection procedures, speed of cash transfer to export partners and the prompt payment of debts; and finally, the quality of communication, its speed and the factor’s use of the Edifactoring system. And it is under this broad range of criteria that Eurofactor Germany emerged as the leading, international light in the FCI this year, scooping the two international industry awards.

Eurofactor Germany’s success built upon that it achieved last year, when it won Import Factor of the Year and placed second in the Import-Export category. It is a remarkable achievement that the factor has managed to not only maintain, but improve its position and Weckop said that he and his department were delighted to have reached the number one spot in both categories. But as Weckop indicated, ‘it is sometimes easier to reach a leading position than to retain it’. 2010-2011 looks set to be an interesting year for the factor’s international department.

The award largely reflects the positive feedback that Eurofactor Germany has received from its global partners and Weckop indicated that receiving objective feedback from correspondents – 70 of whom provided insights into their dealings with Eurofactor – was an invaluable opportunity to get objective – and evidently positive – feedback. And it is not only a success for the international department, Weckop said, but also for its credit limits, collection and legal departments, which had formed an integral part of the firm’s international success. As Weckop made clear, it was the well working ‘interface between departments’ that had enabled Eurofactor to operate in such an award-winning way within the international arena.

Following its ongoing success, Eurofactor Germany is now being presented as a ‘model of best practice for the wider Eurofactor/Credit Agricole group’, and has already begun with a ‘best practice sharing initiative that will act as a benchmark for the factor’s wider European operations’. Following the launch of international operations in the UK, those lessons gained by its German arm are being directly applied to the international department there, with the intention that it and other European group entities will be able to emulate the success of its German counterparts.

Finally, Weckop noted that the success of Eurofactor Germany is paying dividends for the entire group in terms of reputation, with European operations enjoying the benefits of improved relations with correspondents globally. And with issues such as counterparty risk and the provision of credit insurance cover having emerged as pressing concerns in recent months, it is no wonder that a positive reputation is a major boon for the factoring group.

Discerning differentiation

Asked what had been the key to differentiating Eurofactor’s offering from those of its competitors, Weckop said that ‘reliability’ and pro-active ‘relationship management’ had been what had set the factor apart from other players. ‘Our correspondents have realised that they can count on us’, Weckop said, ‘that we are reactive, speedy’ and willing to work with the export correspondent to resolve issues as and when they arise. ‘Some factors largely leave disputes to the export factor, but at Eurofactor they have actively sought to resolve issues in cooperation with their partners’. ‘Eurofactor has always challenged and dealt with clients in disputes’ and it is this approach that has reaped such success for the factor as they actively engage with international partners.

Weckop described ‘relationship management’ as an equally important part of the factor’s differentiation, with the approach key to keeping clients and partners informed. ‘It is often necessary to explain complicated matters to clients’ and Eurofactor has sought to head off misunderstanding by maintaining transparency in decision-making. For this reason, Eurofactor aims to talk with its clients by phone rather than rely upon emails; as the electronic medium is sometimes ‘prone to misunderstandings’. ‘International factoring is very much a people business’, Weckop explained. ‘It requires dedicated, geographically-specific staff’ who can deal with the specific cultural and business sensitivities of global markets. And this is exactly what Eurofactor Germany has done, building a multi-cultural team, tailored to the specific requirements of the markets with which the factor cooperates.

That competitive edge

Asked what represents Eurofactor’s competitive edge internationally, Weckop outlined a number of points that have kept the factor at the top of the game, namely:

‘A strong shareholder in Credit Agricole’ – one that can be relied upon by Eurofactor and its correspondents.

‘Pro-active people and a positive service orientated approach to business’. Eurofactor have faced issues regarding acquiring much needed credit insurance during the recent downturn, but ‘rather than simply giving our partners rejections we provide them with explanations within the possibilities that data protection risks allow’. ‘And it is by keeping our partners and clients informed’ we have been able to build positive relations.

‘Very intense discussions with the credit insurers regarding cover’. As Eurofactor only extends cover in international business with the backing of the credit insurance industry, these discussions have evidently been significant. Unlike most other factors however, Eurofactor works with not one but two credit insurers, which has enabled the factor to benchmark on limits and price. As Weckop explained, the two insurers often extend very different terms of cover on identical clients, meaning that the factor can exploit its relationship with the two insurers in order to get the best deal. Maintaining relations with two insurers did ‘entail complications’, Weckop said, but Eurofactor is large enough to attract the interest of multiple credit insurers whilst being able to deal with the complexities of dealing with two relationships.

Leading the two-factor offering

Next, I asked Weckop about Eurofactor’s two-factor business and how it had fared in the recent downturn. Two-factor business accounts for around 15% of total turnover at Eurofactor Germany, Weckop said. Regarding the impact of the crisis upon business, Weckop indicated that it had created definite problems for specific industries, whilst prompting in some cases a shift from in-house deals to full service business, but that the international situation had already began to improve by the start of 2010. Whilst in 2009 Eurofactor had witnessed precipitous drops in turnover in key export markets such as China, Taiwan and Turkey – in some cases by as much as 40% - extensive government stimulation and the recovery of the wider global economy had resulted in a rebound in 2010. And Weckop was confident that the recovery would continue in 2010.

The c-word (again)

Counterparty risk has emerged as one of the hot topics of late, and at Eurofactor in Germany it would appear that the issue has been no less pressing. Asked if it had been an issue for Eurofactor, Weckop said ‘absolutely, and from both sides’. ‘Correspondents have, since the downturn, begun to ask more frequently about balance sheets, interim reports and shareholder information’. Prior to the crisis Asian banks and factors had regarded their European and North American partners as a safe pair of hands. Now it appears that AAA ratings and the size of the player is not necessarily security against its potential collapse. It has raised the importance of compliance investigations and made ‘know your customer’ all the more important, he said. And Weckop made clear that counterparty risk would not go away as a source of concern for some time to come. The recent crisis gave companies ‘very little reaction time’ and Weckop believed that counterparty risks’ heightened profile will remain that way moving forward.

Managing not avoiding – the art of risk

Finally, I asked Weckop about the credit insurance situation over the last eighteen months. Eurofactor had experienced a rise in premiums in 2009, he said, and this was despite the factors ‘big negotiating power’ as part of a powerful factoring and banking group. ‘The credit insurers suffered losses due to their exposures and bad debt and this was reflected in insurance price and provision’, he said. ‘Additionally, in some cases insurance conditions were tightened – for example for specific debtors on the issue of self-retention, in which the risk portion that the factor had to bear by itself was increased by up to 40%’. The situation has improved in 2010, he said, but cover and premiums have still not returned to pre-crisis levels.

Weckop said that much of this was down to the fact that prior to 2009 the credit insurers had engaged in ‘fierce price competition’ whilst at the same time shifting to increasing automation. The downturn had led to a marked hit on profits and an exposure of the industries ‘neglect of real data’ regarding their clients’ credit situation, according to Weckop. Credit decisions using credit rating data was proven to have been wide of the mark and the industry has had to re-strengthen its human intelligence in order to more accurately evaluate the situation of their customers, Weckop explained.

Weckop’s final lesson for the credit insurance industry was that ‘avoiding risk doesn’t work. It is only in managing risk that the credit insurers can move forward’. Such an assessment bodes well for the careful return of credit insurance and cover. And it seems likely that with increased cover, Eurofactor Germany will only go from strength-to-strength in 2010-2011.

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