A large national money center bank, through their Asset Based Lending unit, had a borrower that had a major concentration (a $10 mil exposure on a $40 mil A/R portfolio) with a single buyer. After determining that single debtor credit insurance coverage was not available on the buyer, the borrower agreed to provide a greater spread of risk by including all their unquestioned buyers with exposures in excess of $1,000,000. Neither the lender nor the borrower saw any risk with these
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Compliance with the terms, conditions and reporting requirements of an accounts receivable insurance policy is not only critical to having claims paid but also to early intervention in problem accounts that can increase cash flow and reduce losses.
During a regularly scheduled review of past due balances, a policyholder was asked why a specific buyer was past due. Instead of the normal “the check is in the mail” or “the balance is disputed” the insured responded, “My customer is an idiot.”
Here is this month’s example, although I have examples for every month of the year. Recently, news agencies started to discuss the existence and use of a food-additive product conservatively labeled
Credit insurance, when used as a sales expansion tool can provide an outsized return on investment, as measured by the amount of premium paid. A typical midsize business can show increased profits of hundreds of thousands of dollars with modest sales increases due to trade credit insurance.
For example a business with $20 million in annual revenue and can increase sales to new and existing customers by only 5% due to increased credit can show increased profit of $150,000
Trade credit insurance is a financial tool which manages both commercial and political risks that are beyond a company’s control. Balance sheet strength is ensured, cash flows are protected, and loan servicing costs, and asset valuation are enhanced. It also allows businesses to feel secure in extending more credit to current customers, or to pursue new, larger customers that would have otherwise seemed too risky, significantly reducing the risk of entering new markets.
The protection it provides allows a business to increase sales with existing customers without increasing its exposure. Insured companies can sell on open account terms, where they may be restricted today, or only sell on a secured basis. For exporters, this can provide a major competitive advantage.
Companies invest in trade credit insurance for a variety of reasons, including:
- Sales expansion – if receivables are insured, a company can safely sell more to existing customers or go after new customers that may have been