Companies like Atradius know their customers and their suppliers well and are able to assess the current economic situation very well.
Credit insurance companies usually stay in the background, but hardly anyone knows exactly what the state of the domestic economy and companies is like. Franz Maier is the general director of the credit insurer Atradius for Austria, Hungary and Southeastern Europe, knows the heartbeat of the Austrian business landscape and gives it a relatively good report. Nevertheless, Austria's economy has lost ground in the European rankings.
Please briefly explain Atradius’s business area.
Franz Maier: Atradius was founded around 100 years ago and is now the second largest credit insurer in the world. Our business is simple - when company A makes a delivery or a service to an insured company B, it issues an invoice with a payment term. This is actually a loan, the so-called supplier credit. If company B cannot pay the invoice, Atradius compensates company A.
How expensive is credit insurance?
Maier: That depends on the industry in question, the market environment, the creditworthiness of the buyers, the payment terms and where the business is conducted. There are sometimes very high country and industry risks. Some countries and some industries are less risky, and the premiums will be lower here. However, the entire portfolio must be insured and then we are talking about a premium rate of well under one percent of the monthly outstanding amounts. But that varies.
How high is the risk of default in Austria?
Maier: Unfortunately, it is higher than ever before. We will record around 7,000 bankruptcies in Austria this year, which is the same level as 15 years ago. The entire macro and microeconomic perspective is crucial here. There was high inflation that raged throughout Europe, with Austria being one of the countries most affected. Inflation is now falling, but financing costs are still very high. If companies need to refinance today, it is difficult under the current conditions. On the other hand, companies can no longer pass on high wage costs and energy prices, and there is a lack of consumer demand in Austria because people have less money in their pockets. There is also a shortage of skilled workers, and the high non-wage labor costs are not exactly conducive to our competitiveness on the global market. This is putting massive pressure on the economy.
What level are we at in comparison to Europe?
Maier: In terms of inflation, Austria has slipped far, energy costs were horrendous, non-wage labor costs, collective wage increases, a lack of skilled personnel and bureaucracy for our companies currently make Austria uncompetitive as a business location.
As a manager at Atradius, you know the economic situation very well. How would you describe it?
Maier: I want to be positive. Austria has always been the export king and earned every second euro directly or indirectly through exports. The disadvantage, however, is that we are very focused on or dependent on Germany. When the German machine is humming, it is humming in Austria too. Germany is currently stagnating and there is no growth in Austria this year either - we are in a recession. Our business location is coming under pressure. In energy-intensive sectors, Austria has missed the boat in the last two years to appear on the energy market with a certain degree of price stability. Things are slowly starting to ease. For the future, I see light at the end of the tunnel. Further interest rate cuts are expected and energy prices are moving downwards. That is also good for consumers because it means they have more money in their pockets and can spend it, and falling interest rates also positively stimulate investment and purchasing behavior. Austria certainly still has some homework to do. We still have a few bumpy months ahead of us. In the second half of 2025, assuming there are no further major geopolitical unrest, the industry will slowly pick up again and demand for real estate and cars will rise again. Then we could see acceptable growth again in 2026 after a long time.
What could the previous federal government have done better?
Maier: I don't know if another government would have reacted better. But action could have been taken a little faster on some issues. If we look at the beginning of 2023, when energy prices were at an enormous level, they were falling again in some parts of Europe. That didn't happen here. Here the government did not introduce the necessary measures. Coming out of Corona, virtually all companies survived, even though many argue that money was distributed indiscriminately. Only now is it becoming clear which zombie companies were taken down as a result. All in all, the Austrian government did a very good job, but action could have been taken more quickly in one area or another. In hindsight, however, we are all much wiser than before.
Is Atradius noticing an increased demand for credit insurance due to these volatile times?
Maier: Absolutely! The credit insurance industry operates more in the background. All large companies know what credit insurance is and almost all of them use it. The larger mid-size companies in the SME sector also use credit insurance. Those who really need our product, the smaller SMEs, usually lack this knowledge. If a large customer fails for such companies, it can no longer be compensated. Credit insurance not only secures the liquidity and risks of customers, but we also provide liquidity. With a secured portfolio, a bank can be asked for factoring and invoices can be pre-financed. Without credit insurance, banks usually refuse this, unless they have credit insurance themselves.
How much has demand increased and how many requests do you have to reject because risks can no longer be assessed?
Maier: Compared to the last two years, inquiries have increased by around ten to 15 percent. We generally do not reject inquiries, but rather check all of an applicant's customers and, based on the results, we set credit insurance limits for the companies we check. If we reject a credit insurance limit, we also explain why we are not insuring an applicant's customer - usually the lack of creditworthiness is the reason. Our customer should then consider whether they really want to deliver on open account in the future. There are therefore risks and companies that cannot be insured. Nobody would insure the first floor of a house against fire when the ground floor is already on fire.
Has digitalization and AI simplified credit assessment for Atradius?
Maier: We have been working with so-called score cards for decades, which ask for a variety of information - how long a company has been in business, how many employees it has, what industry the company is in, what are its balance sheet ratios and much more. We are integrating AI and machine learning into our ecosystems to achieve greater speed, quality and efficiency in portfolio management and credit decisions.
These activities include automatically retrieving and analyzing information from numerous sources, entity matching, machine reading of financial statements, and we use neural networks and fuzzy logic to optimize credit decisions. The results are impressive, as it turns out. We've achieved significant efficiency improvements, productivity gains, improved customer service, and savings on accounts receivable. This is especially important given the enormous size of our risk exposures and the millions of credit limits we process.
They often criticise the payment morale in Austria …
Maier: That's true. But why is it that Austrian companies are slow to pay? The payment term is the actual supplier credit, because that is the cheapest and largest form of credit in the world. Most companies in Austria only pay around a month after an invoice is due. This makes the company's own liquidity planning difficult. Factoring can of course help here. Companies generally try to extend the payment terms as far as possible, because they don't pay interest and the supplier acts as a bank. In a difficult economic environment, payment morale decreases.
Aren’t the multiple crises – from the energy transition, the war in Ukraine, less reliable supply chains to the shortage of skilled workers and the simmering economic war between the West and China – making your business more difficult?
Maier: The great art, and this is something that companies should also take on board, is to anticipate events. Our business is not just to analyse the risk today. That is easy and anyone can do it. Our business is to anticipate how a company will fare in the next twelve months and whether it can survive this period and then be able to settle its liabilities. At the end of the day, we insure these transactions. When geopolitical events occur, such as the blockade of the Suez Canal, we need to know in a second which companies will be affected. We need to know which goods are on the ships on this route, which customers are generally supposed to receive these goods and if they cannot reach their destination, which production lines will be brought to a standstill and what impact this can have. Even with the nuclear disaster in Fukushima, it was clear that production, life and trade within a radius of around 100 kilometres would come to a standstill and that a large number of companies would therefore be negatively affected. In such cases, we have to react quickly and not after a few weeks. Credit insurance protects you in good times and, of course, in bad times too.