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Paying Attention to Banking News Critical for Credit Managers

Though recent big-picture stories about problems with government debt throughout the world, notably Europe (see above story on Spain), can seem somewhat tangential, credit professionals need to be on top of the happenings if their companies are doing any level of business abroad. And, with a growing White House emphasis on exporting, who isn't exporting or thinking of doing so in the not-so-distant future?

In the June issue of Business Credit, 2012 Credit Congress Speaker Karen Hart, partner at Bell Nunnally and Martin LLP, noted that government debt issues are not just matters for the politicians to fix, because, eventually, "it all boils down to the banks."

"As the banks feel the pinch, so too will your customers," said Hart. "If your customer takes a hit, bad things may be in store for their accounts with your company. So, pay close attention to what is happening in these forums." She added that, because of banking issues and the impact of the more interconnected global economy, now is perhaps the most important time to be searching actively for red flags.

As such, those doing business where instability, whether geopolitically or financially based, should at least investigate options to protect their investments by reviewing terms as well as considering credit insurance or letters of credit. Granted, it is critical for credit professionals to remember that nothing is a catch-all even if the option does (and it doesn't always) offer the right fit for their company's size or policies.

"Credit insurance and letters of credit will not solve every problem, every time," Hart said. "For example, with letters of credit, you have to know the reputation and financial soundness of the financial institution you are dealing with. You may not know your customer's bank, and European banks are getting hammered in the crisis."

- Brian Shappell, CBA, NACM staff writer