The collapse of British air and tour operator Thomas Cook sent alarm bells in the tourism industry in Cyprus and Greece, with Cypriot hoteliers facing a €50 mln shortfall due to the inability of the group to meet its obligations.
The Thomas Cook collapse will have major negative repercussions for hotels and local tour operators similar to the one that the demise of Orphanides Supermarkets left in the retail sector.
Hoteliers who believed that dealing with a 175-year-old major global company running hotels, resorts and airlines for 19 million people a year in 16 countries meant their trade receivables were secure, are in for a rude awakening and now face massive losses.
Recovery chances for Cypriot hoteliers are slim as Thomas Cook collapsed under a massive GBP 1.7 bln debt pile, with the banks first in line to get paid from the proceeds of asset liquidations.
Security of Trade Receivables
The collapse of Thomas Cook is a warning to small-to-medium sized enterprises (SMEs) in Cyprus and Greece to be extra vigilant and take measures to safeguard the most important component of their assets, the trade receivables.
“When the major part of a balance sheet is made up of trade receivables, a sensible business owner has to start worrying about how secure the single largest asset class in his SME’s balance sheet is,” said Shavasb Bohdjalian, CEO of Eurivex Trade Finance (http://www.eurivexfinance.com/) the alternative business finance solution provider.
Diversification and spreading trade receivables among many debtors is easier said than done, considering that a handful of supermarkets control 85% of the retail trade, while about five pharma warehouses control the local pharmaceutical trade, to name a few of the sectors where a few dominant players have cornered the market.
“When the going is good and sales are rising, generating profits, many business owners are reluctant to insure their trade receivables with a credit insurer against default risk even though such coverage is widely available for Cyprus and Greece,” said Bohdjalian.
Liquidity boost and credit insurance combined
In addition to managing credit risks, the majority of SMEs also need to address working capital issues and find effective methods to boost liquidity.
“One of the most effective methods of managing and mitigating risks of trade receivables and boosting liquidity is the use of alternative trade finance providers, offering invoice discounting and factoring services,” said Athos Kyranides, Consultant at Eurivex Trade Finance in charge of trade finance operations.
Alternative finance providers offer both factoring and domestic invoice discounting services, confidential or disclosed, in addition to credit insurance on all or select trade receivables.
“Very simply, any business that issues invoices to its clients on credit of up to 120 days, can assign the invoices to an alternative trade finance provider such as Eurivex Trade Finance and receive immediate cash, and at the same time secure credit insurance on all or selected trade receivables,” said Kyranides.
In cases when the trade receivable is insured against credit default risk in the event of inability of the debtor to meet the obligation, the supplier no longer faces any risk, since they have received cash in advance on the assignment of the invoices and the financing provider will submit a claim with the credit insurance firm, seeking compensation.
Eurivex Trade Finance cooperates with Euler Herms, one of the world’s top credit insurance firms covering both Cyprus and Greece.
