Date
26 September 2017
HSBC commercial banking head Albert Chan says only about 10 percent of open account transactions in Asia are insured.Photo: HKEJ
HSBC commercial banking head Albert Chan says only about 10 percent of open account transactions in Asia are insured.Photo: HKEJ

Uninsured open account trades exposed to higher risks

Credit risks are rising for businesses that let clients settle transactions via uninsured open accounts, the Hong Kong Economic Journal reported Monday, citing Albert Chan, head of commercial banking at The Hongkong and Shanghai Banking Corp. Ltd.

Only 10 percent of those transactions in Aisa are insured, Chan said, even though about half of the trades taking place in the region are through open accounts and the method is growing in popularity.

Unprotected suppliers are more prone to a liquidity crunch, the report said.

About 70 percent of businesses around the world have had to contend with illiquidity due to buyers overdue in their payments. Delays in account receivables also accounted for about a quarter of company failures, Chan said.

But in the United States and Europe, about 80 percent of businesses use trade insurance for open-account transactions, which comprise 70 percent of all trades.

The bank has allied with Euler Hermes Hong Kong Services to provide global insurance, tapping potential demand from clients relying largely on trading through open accounts, with a view to improving their risk management, especially as they expand, Chan added.

Euler Hermes will settle claims in 30 days at a premium of up to 0.5 percent of an enterprise’s sales.

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