The Finnish forestry and wood products multinational, Metsä Group, can be singled out for gold star status when it comes to its strong and dynamic approach to credit management. Perhaps uniquely, this includes a partnership with different agencies, that together create a wrap-around solution for the Group’s credit and risk management needs.
Metsä Group’s Credit Management Director, Mark Butterworth told us more. “I would describe it as a five-way partnership” he says and adds: “we have been working this way for several years now and it has been successful for us.”
The five partners he describes include the credit insurance broker, today BPL, credit insurer, Atradius, fintech rating agency Modefinance, part of the TeamSystem Group, business information company, Bureau van Dijk (BvD, a Moodys Analytics company) and Metsä Group itself. He explains: “this approach allows us to retain control over credit risk decisions, supported by Modefinance’s expertise in financial risk tools development and backed by the risk transfer with Atradius, which enables us to work efficiently and successfully.”
The Challenge
To create a unified approach to credit management across a diverse co-operative
Metsä Group is actually, Metsäliitto, a co-operative owned by more than 90,000 private Finnish forest owners. Historically, business areas tended to work independently of each other. As Mark explains: “20% of our customers deliver most of our turnover. The remaining 80% represent a huge number of smaller customers. There was very clearly a need to find a more efficient way to manage credit risk and collections across the customer portfolio”.
A large part of the Group’s challenge was how to ensure consistent access to high quality information across a portfolio of thousands of customers, in five business areas operating in different sectors, located in 28 countries, while at the same time, acting quickly, efficiently, and safely when sales opportunities arose.
The Solution
A bespoke collaboration that delivers a single strategy for the entire business.
In the mid-2000s the group began to exploit synergies across its five business units. “We also wanted to rationalise and streamline our approach to credit management to better reflect and support the business strategy,” Mark explains. Unifying the purchase of trade credit insurance at the group level with Atradius was one of the first steps. However, the challenge remained that different parts of the group had different levels of financial information about their customers and a consistent approach needed to be taken. Metsä wanted to ensure quality and consistent information to support its own decision making, backed up by credit insurance.
Managing such large amounts of data and identifying the highest quality information from within that is a challenge in itself. Mark turned to BvD which was able to offer a wide corporate coverage (at the time 60 million companies, today over 450 million) with its Orbis database. This relationship further evolved with the development of BvD’s Credit Catalyst tool and working with risk scoring company, Modefinance. Working closely together with Mark, the fintech developed a tailor-made scoring model to help identify, aggregate, and analyse the most relevant data collected both internally and from third-party databases. This helped Metsä to create automatic credit limit approval for low-risk customers and free up the global credit team to focus on the more complex or higher risk cases requiring human decision-making.
It's a relationship that is organic with Modefinance’s functionality growing with Metsä Group’s needs, including even greater volumes of data now additionally provided by business analysts BvD. Mattia Ciprian, CEO of Modefinance, says: “Minimise the risk while optimising the exposure: the algorithm we developed integrates and works on both publicly and privately sourced information, to automate the creation of a customised credit limit for each of Metsä Group’s clients. To speed up the procedures, and simplify the credit risk analysts’ jobs, it required a deep understanding of the supply chain: the clients’ financial situation as well as the size of the business made between the client and the supplier were central in our methodology’s development.”
The outcomes
Improved efficiency, lower risk, and business growth
The Group’s meticulous approach to data collection, analysis and credit management means Atradius provides them with some of the highest possible levels of discretionary credit limits. This enables the Group to act quickly to business opportunities.
Nicholas Grindlay, Senior Account Manager Atradius Global, says: “We audit Metsä Group’s credit management procedures and then authorise discretionary credit limits. This means that the Group can choose their own credit limits up to a certain amount, which for Metsä are quite high. One of the biggest benefits this brings the Group is speed. They can respond to business opportunities incredibly quickly. Metsä’s credit team are able to speak directly to our senior underwriters about the risks they are particularly interested in. This sharing of information and knowledge is beneficial for both parties.”
Mark acknowledges this and points to the important role that trade credit plays in business growth. “We use the business information we collate along with our credit insurance policy as tools for growth”, Mark explains. “We direct ourselves towards companies that have the right attitude, the right behaviours, the right ethical setup, and also the right financial strength.” This business model reflects the Group strategy and has enabled sustainable and strong growth, backed by credit insurance. “This is not to say we don’t take risks”, explains Mark, “we do, but the decisions are based on detailed information and analysis”.
He adds: “Information sharing is one of the most important aspects of our relationship with Atradius. We tell Atradius and they tell us about potential risks. It works both ways.”
“Metsä’s credit team sits in the finance department, but actually most of our daily work is with sales. We get information from our account managers, and they get information from us that we source from the different collaborators with whom we work. Our work is truly a partnership between different departments within Metsä, and the long standing collaborations that we have with Atradius, Modefinance and BvD. Interestingly, by collaborating with these outside partners, I am retaining more internal control. It almost sounds contradictory, but it is very powerful.”
“In addition,” he adds, “credit insurance enforces discipline in the business. The insurance has a strict structure to which we have to adhere. To step outside of the structure requires internal business approval from higher management.”
Mark concludes by noting the importance of the business relationships. He says: “We have built up relationships with our partners over many years. For example, part of the value that Atradius, BvD and Modefinance brings is that they know us really well. We know and trust each other, and they work like an extension to our team, supporting our business.”
