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.
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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.
“So, why should I buy accounts receivable insurance?” is probably one of the most common questions I get asked from potential policy holders. It’s really quite simple, you should buy credit insurance because of pink slime…. That’s right, pink slime!
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.
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.