Trade Credit Insurance
In the global marketplace, insolvency or financial distress of a trading partner can expose your business to financial loss. Buyers may be unable to pay because of insufficient cash flow, high leverage, lost revenue, management turnover or business model obsolescence. Regardless of the cause, the impact can result in impaired cash flow, lost earnings, reduced shareholder wealth and future plans being idled or shelved.
To address credit risk, risk management professionals gather, analyze and monitor financial information to assess a buyer’s credit worthiness. This information creates the foundation for insurance policies that mitigate the risk of payment default by either domestic or international buyers. This type of insurance is called trade credit insurance, also known as accounts receivable insurance or export credit insurance. At Securitas, we have extensive technical and credit analysis experience in developing solutions that meet our clients’ diverse business needs.
Benefits of Trade Credit Insurance:
Cash flow protection – Buyer nonpayment, due to insolvency or slow pay, can have a significant negative impact on a company’s cash flow. Trade credit insurance allows a company to mitigate the financial impact of buyer nonpayment by transferring credit risk to a well-capitalized insurance company.
Increased competitiveness - Secured or restrictive terms of sale can be a competitive disadvantage in trading relationships. Internationally, the working capital requirements of a commercial letter of credit can limit or preclude sales opportunity. Trade credit insurance allows a company to offer open account terms to international buyers, while reducing credit risk, which provides a distinct advantage when competing globally. Domestically, trade credit insurance allows companies to offer longer or extended terms to buyers.
Sales Growth – Often, buyers want to trade beyond pre-established credit limits. Trade credit insurance allows companies to expand sales without incremental credit risk by adding coverage to existing credit lines.
Monetize accounts receivable / increase working capital - Accounts receivable represent the primary source of repayment for a working capital credit facility. Trade credit insurance enhances the receivable being financed thereby allowing a company to obtain expanded credit facilities, better advance rates and improved terms through the reduction/elimination of ineligibles (concentrations, cross aged, foreign a/r).
