Submitted by Steven Schrull on
The ability to transfer the risk of financial nonpayment of a businesses largest asset to a well-rated insurance company opens up several ways to increase revenue. These include the ability to sell more to new and existing customers, increased cash flow, open new markets, provide an alternative to letters of credit and other impediments to sales expansion.
Often times sales to existing customers flatten out, not due to lack of demand for a businesses product but by how much credit risk a business is willing to take. Sales to existing customers could increase if more favorable credit terms are offered. For example if a risk analyst agreed with a company’s internal credit limit that company could, depending on its risk tolerance, double the sales while decreasing credit risk by utilizing credit insurance to extend more credit.
Businesses often do not offer credit to all their customers. New customers may be required to prepay for new orders, letters of credit may be mandatory for international sales. These requirements are not based on if the new or export customer is credit worthy but based on a lack of information on that potential customer. These decisions while prudent, act as a sales inhibitor. By obtaining an insured credit limit for these new customers revenue from them should increase as well. As insuring the accounts receivable is transparent to the customer, it gives the further appearance of trust which is a critical component in the buyer /seller relationship.
Pre-qualified credit worthy prospects can greatly increase the success of a strategic targeted marketing campaign. When entering new markets, focusing on credit insurable buyers focuses the strongest prospects and eliminates the issue of extending credit after the sale occurs.
Increased cash flow is critical to increased revenue. A company’s accounts receivable is usually the largest asset in an asset based lending facility. Export receivables and buyer concentrations are the more frequent reason receivables are excluded from the borrowing base. Insuring those accounts will often allow the lender to include those balances thereby increasing the cash flow fueling further growth.