Phobia over secret accounts threatens recovery, says Desnos

Businesses will need to overcome their historic objection to disclosing confidential management accounts if they are to drag themselves out of the recession, according to the chief executive of the UK’s biggest trade credit insurer.

Fabrice Desnos of Euler Hermes said companies reluctant to give up management accounts could have credit decisions based on accounts reflecting one of the worst recessions in living memory.

If business was to heed the warning it could see the credit insurance sector bring about a fundamental shift in the disclosure of confidential financial information that is currently kept closely guarded.

“In 12 months time, or two years, when the economy starts to pick up, companies will file their 2008 or 2009 accounts. The accounts will look rubbish. Looking at the historical accounts you would perceive the company to be in a very different financial position, so it could only work positively to share information to understand exactly what is going on in your business.

“It works for us to identify the riskiest scenarios right now and it will work for us to effectively ‘bang the windows’ when the recovery comes. If a company believes that they’re winners then they should be prepared to show it,” Desnos said.

Trade credit insurance protects suppliers from the threat of their customers going insolvent. Euler Hermes has been approaching the customers for more accurate and timely information on a more regular basis.

Desnos said that he would continue to demand management accounts from “end buyers”, those purchasing goods and services from suppliers on credit terms, for the protection of his clients.

His vow comes in the wake of economic shockwaves putting companies across the spectrum under threat of collapse.

“Because of the speed of this particular economic recession historical accounts are no longer necessarily trustworthy for judging the quality of a particular company or for making a judgement on its ability to pay its debts in the next six months,” he warned.

Euler Hermes currently underwrites £51bn of transactions, boasting an array of business from the FTSE 100 to the SME community as customers. But Desnos conceded 15-20% of these had seen the level of their cover reduced or withdrawn.

“You have to put that in context. This is the worst economic crisis we’ve seen since the end of the second world war. This is a crisis where the amount of credit transactions has reduced between November 2008 and February 2009 by almost 20% as well,” said Desnos.

“So I wouldn’t qualify that as an over-reaction. There is not one sector where a business could really find itself immune.”

Desnos wanted to make clear to end buyers that Euler Hermes was “geared up to give everyone a chance to prove they are creditworthy”.

“In the broader context we’ve been asking for far more current information to justify maintaining the level of cover,” Desnos added.

Further reading

Desnos: failures not fault of credit insurers