Pharmaceutical Sector Looks to Improve Cash Management and Reduce Risk

BALTIMORE, MD – Volatility in the pharmaceutical industry, caused by factors ranging from merger activity to recent reports of aggressive accounting issues at high-profile companies, has increased industry credit risk pressures according to Atradius Trade Credit Insurance.

“Shrinking customer bases create larger concentrations with fewer buyers,” says pharmaceutical industry trade credit underwriter Kristin Haneberg of Atradius Trade Credit Insurance. Her firm is the U.S. arm of Atradius Group, the second leading credit insurer in the world.

“As a company’s customer base consolidates, lenders become more cautious and it becomes difficult to obtain the financing necessary to develop new products and enter new markets,” Haneburg said. “U.S. manufacturers are also looking to expand into overseas markets through government contracts, which often leads to slow pay issues.”

Credit professionals in the pharmaceutical industry are increasingly turning to commercial credit insurance for specialized policies that help improve financing options and expand borrowing power by providing lenders with the security of insured accounts receivable collateral.

Commercial credit insurance also helps protect policyholders by insuring commercial accounts receivable against the effects of loss caused by the insolvency or protracted default of buyers. Credit managers view this aspect of credit insurance as a welcome back up for credit decisions, especially in the wake of the accounting irregularities at McKesson HBOC that wiped out $9 billion in shareholder value and the recent earnings restatements at Cardinal Health Care.

Trade credit insurance policy pricing varies, and is determined by annual sales, loss experience and terms of payment according to Atradius Vice President Arjan van de Wall. “A typical premium rate is about 0.15 to 0.30 percent of insured sales for international transactions and approximately 0.08 to 0.15 percent of insured sales for domestic,” van de Wall said.

While most commercial credit insurance policies have traditionally been issued on a whole-turnover basis, some credit insurers now allow buyers to tailor coverage more specifically to key account or even single buyer transactions. Atradius requires $5 million in export and $10 million in domestic insured sales to offer a credit insurance policy.

Atradius Trade Credit Insurance, Inc. offers commercial credit insurance, trade receivables securitization, debt collection and other credit management services to meet the needs of U.S.-based companies. Atradius credit insurance policies cover losses due to bankruptcy, payment default or events in overseas markets such as political turmoil or import and trade restrictions.

A white paper, “Trade Credit Insurance: A New and Sustainable Approach To Corporate Credit Management,” is available for further information about commercial credit management. Please contact Kathy Farley at (410) 246-5584 or kathy.farley@atradius.com or visit www.atradius.us.