News and Blogs Christoph Buchmann on navigating trade risk and embracing digitalisation

Christoph Buchmann talks to us about navigating business uncertainty, how companies can develop credit risk mitigation skills in an ever-changing and digitalised world, and why he found studying CITF and CTFC both useful and enjoyable.

In 1789, Benjamin Franklin sent a now famous letter to a friend in revolutionary Paris: “Nothing,” Franklin wrote, “Is certain except death and taxes”. 

That hasn’t changed, of course, but it could be argued that, despite the many upheavals of the 18^th Century, a globalised world, faced with climate change, brings much more uncertainty.  

“The rate of change is accelerating,” says Christoph Buchmann, a member of the management board at SÜDVERS Trade Credit Insurance Broker. 

“Heightened economic and political risks necessitate continuous adjustments in credit risk management strategies.”  

But how can those assessing credit risk know what’s really going on?  

“Annual reports are still the main and best information source for credit risk assessment,” says Buchmann. “They are based on generally accepted accounting principles (GAAP), standardised, reliable and certified by audit firms. The resulting accounting ratios and ratings can be compared over time, as well as on a sectoral basis within the risk´s peer group. The primary drawback of annual reports is that they are backward-looking.” 

That is why additional sources like credit ratings, credit reports, bank references, payment experiences, sales staff reports, and business news are also important. “We also see new approaches like optimising risk management processes by integrating data from social media,” says Buchmann. “For example, if employees complain on ‘X’ that a firm has stopped paying salaries, that sort of update can meanwhile be included in credit risk assessments.” 

Buchmann expects the importance of technology and, in particular, artificial intelligence (AI) in credit management to greatly increase. “Collecting and processing information efficiently is key,” Buchmann says. “Nevertheless, the human factor will not be replaced and technology will not have free rein. “For example, you have to comply with new regulation like the EU AI Act, the first regulation on artificial intelligence.” 

Those working in trade credit insurance also face a hard sticking point that not all those in the markets do. 

“When it comes to trade credit insurance, bear in mind that they are not just giving an opinion on how the business might develop. Unlike ratings agencies and business information agencies, they are liable for their positive credit limit decisions within their trade credit insurance policies and have to pay out if buyers go into bankruptcy. That´s why it is in their interest to keep their database as up-to-date as possible – and within a global context.” 

Buchmann points out that, if you export to more exotic export markets, you also have to ask about things that are taken for granted in Europe, such as ‘how do you get hold of reliable annual reports?’, ‘is there a legal framework for debt collection?`, and `what do the recovery chances for creditors look like in insolvency or restructuring proceedings?’. 

“Upcoming emerging markets, for example in North Africa, South America, and parts of Asia, are becoming more important to companies because they are new markets, where companies can hope to increase sales,” says Buchmann. “But they bring many more risks than the ‘old economies’ do. You have to adapt your credit risk management there accordingly and might check for risk transfer solutions from government-backed export credit agencies (ECA).” 

What is the most effective approach to staying ahead of this? 

“In Germany, we have a saying: to be a pianist, you must be able to play every note on the keyboard. Similarly, in trade risk consultancy, one must be proficient in advising across the entire spectrum of trade credit and trade finance solutions,” says Buchmann. “That’s why I took the Certificate in International Trade and Finance (CITF) and the Certificate in Trade Finance Compliance (CTFC).”  

Buchmann had no banking background when he sat CITF and CTFC. In fact, that was part of the rationale for studying them following his law degree.

Buchmann cautions though, that he was personally always very interested in the issues around globalisation and trade. “Passion is good. Without a strong internal drive to learn these things and apply them, it doesn’t make sense to sit papers like CITF and CTFC,” he says. “CITF, for example, is not easy if you don’t have practical experience from a trade finance bank. For my own part, I’d never take something like the Certificate for Documentary Credit Specialists (CDCS) because you need to work on documentary credit day to day to get on top of it.” 

What does the future hold for trade finance in a fast-changing world? Buchmann is wary of reaching for a crystal ball, but he points to the recent end-to-end digital bank guarantee issued by Siemens, in collaboration with Bayerische Landesbank, in favour of Thyssenkrupp, as an important milestone in the digitalisation of trade finance. 

“The credit risk and financing environment for businesses remains challenging,” says Buchmann. “Global business insolvencies will rise further in 2024 and late payment is increasing.” He says that companies need to spread their risk by diversifying their markets, customers, products and suppliers, and that they need to improve resilience by using flexible financing products such as factoring or payables finance to maintain strong liquidity. As ever, in tougher times cash is king.  

None of that will be simple, of course. Buchmann also points to increased geopolitical tensions, such as those from the ongoing wars in Ukraine and the Middle East, and the uncertainties that come from the reshaping of global trade. 

So, plenty more to learn and to work on.  

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