Trade Credit Insurance

Get paid for what you sell. Credit insurance protects a company’s accounts receivable, in most cases its largest asset, from the risk of unforeseeable nonpayment by one of its customers. It is an insurance policy that can cost justify its expense in a variety of ways:

Efficency / Automation

Qualify accounts for credit limits by using the insurer’s online portal and robust database in a matter of minutes, rather than the days it takes to call trade references.

Overseas Expansion

Many companies shy away from extending terms across borders. Credit insurers with global footprints help navigate this risk, just as if the accounts were domestic. They have local presence, speak the language, and can underwrite risk throughout the world. Once insured, companies can avoid costly letters of credit, early pay discounts, and other barriers to trade.

Eliminate other costly risk mitigation tactics

Early pay discounts (e.g. 2% 10 n30), factoring, credit card acceptance, and confirmed letters of credit do significantly reduce risk. They also significantly reduce margin and can limit selling opportunity. Credit insurance is a fraction of the cost and helps foster trust and a healthier relationship between seller and buyer.

Safe and aggressive sales growth

Conservatively run companies may be reluctant to maximize sales opportunities with new, unfamiliar accounts. Credit insurance helps companies accelerate revenues and profits with reliable companies that have a track record of paying their bills.

Access to capital

For companies on a borrowing base line of credit, they may find they are not able to borrow against concentrated, export, or aged receivables. Credit insurance should ease their lender’s concern, allowing them to tap into the value of this asset.

Protection against the unforeseen

For companies with key account concentrations (10% or more of their revenue comes from one account), the loss of that receivable could prove catastrophic. Just as a company insures a building it does not expect to burn down, large receivables should be insured because of the financial risk they present, not the likelihood of loss.

Reduction in bad debt reserves:

Reserves are simultaneously too high and too low. Too high in that they may be 4-5x a company’s normal write offs, leaving too much working capital on the sidelines. Too low in that they are insufficient to absorb a bad debt loss from any of the company’s top 10 customers. A credit insurance policy allows companies to lower bad debt reserves to 10% of former levels. This allows for a tremendous one year pickup on the income statement and adequate protection against all customer defaults. The policy is also a tax deductible expense.