484-595-0100
Preference Claims: Protecting Creditors with Insurance

Preference Claims: Protecting Creditors with Insurance

by | Jan 23, 2025 | Credit Insurance

When a company files for bankruptcy, creditors often face complex challenges, including the risk of preference claims. For businesses extending credit, these claims can be disruptive, jeopardizing their hard-earned payments. Fortunately, trade credit insurance provides a layer of protection that can safeguard your financial stability. 

Here’s what you need to know about preference claims and how trade credit insurance, offered by Securitas Global Risk Solutions, can mitigate the impact. 

 

What Are Preference Claims? 

Preference claims arise when a bankrupt company (the debtor) seeks to recover payments made to creditors during a specific period before filing for bankruptcy—often 90 days for general creditors or up to a year for insiders. The reasoning? These payments might unfairly favor certain creditors over others, reducing the remaining assets available for distribution among all creditors. 

For example, if your business received payment from a customer just weeks before they filed for bankruptcy, you could be at risk of a preference claim. The court may demand repayment, leaving your company exposed to financial loss and uncertainty. 

To better understand the complexities of preference claims, watch the video below: 

This video, presented by Lowenstein Sandler LLP, offers a concise explanation of preference claims and provides practical insights for creditors navigating bankruptcy proceedings. 

 

How Does Credit Insurance Cover It? 

Trade credit insurance is a proactive solution to mitigate the risks associated with preference claims. Here’s how it works: 

1. Nonpayment Protection                                                                                                              If your customer becomes insolvent, trade credit insurance ensures you are compensated for unpaid receivables, protecting your business’s cash flow. Unlike recovering through the bankruptcy process, insurance allows you to avoid lengthy and uncertain legal proceedings. 

2. Coverage for Preference Claims                                                                                              Policies can also cover amounts recovered due to preference claims. When courts demand repayment of funds previously received, a well-structured trade credit insurance policy helps safeguard your business from financial setbacks. 

At Securitas Global Risk Solutions, we specialize in crafting customized policies that address these risks, ensuring your business is protected from the unexpected. As Steiner Law Group notes, preference claims can catch creditors off guard, but trade credit insurance offers a vital safety net.

3. Guidance and Expertise
 Beyond financial protection, Securitas Global Risk Solutions offers expertise to help your business navigate complex claims and disputes. Our partnerships with legal professionals ensure you’re equipped to handle challenges efficiently and effectively. 

 

Protecting Your Business with Trade Credit Insurance 

Preference claims can pose significant financial risks, but trade credit insurance provides the protection you need to stay secure. Whether you’re dealing with domestic or international accounts, having the right policy ensures you can focus on growth instead of worrying about potential clawbacks. 

To learn more about protecting your business with trade credit insurance, visit Securitas Global Risk Solutions or contact us directly. Don’t leave your receivables at risk—act today to safeguard your financial future.

Since 2004, Securitas Global Risk Solutions, LLC (“Securitas”) has helped clients develop credit and political risk transfer solutions that provide value on numerous levels. As an independent trade credit and political risk insurance brokerage, Securitas is focused on developing comprehensive solutions that meet the needs of clients, ensuring a complete understanding of policy wording and delivering excellent responsive service.

Demystifying Accounts Receivable Insurance in 10 Minutes

Demystifying Accounts Receivable Insurance in 10 Minutes

by | Dec 17, 2024 | Accounts Receivable Insurance, Credit Insurance, Trade Credit Insurance, Trade Insurance

Accounts Receivable insurance is a straightforward concept.  It’s an insurance policy that renews annually.  Key policy terms include the Insured (seller), the insured products / services, terms of sale, any retention and the buyer credit limits (the seller’s customers).  Unlike other forms of insurance, the policy is actively managed.  The policy changes as the Insured’s sales, buyers and credit limits change.      

How does it work?   

    1. Seller receives sales order from buyer 
    2. Seller establishes credit line on the policy (online policy management) 
    3. Seller extends credit to a buyer and ships the products / provides the service 
    4. The buyer has an inability to pay for products / services
    5. The seller files a claim against their insurance policy
    6. The insurance company pays the insured per the policy terms

That’s it.   Accounts Receivable insurance.   

While AR insurance is gaining traction and utilization, most companies are not aware the insurance is available.  First and foremost, most property & casualty brokers do not inform their customers that the insurance exists.  Secondly, and probably more importantly, companies only seek / research a solution when a customer is not paying them.   At this point, its too late to cover the current loss, but the loss could be so painful the business doesn’t want to suffer a future credit loss, so they implement a policy.    

Key Takeaways: 

    • A/R is often the largest asset on the balance sheet
    • The only asset that is uninsured 
    • The likelihood of loss from non-payment of a receivable is greater than some property damages  
    • Can reduce cost of managing credit and making credit decisions 

A credit loss can have significant impact on P & L.   

For example, a credit loss goes right to the bottom line.  A company with 10% profit margin would have to generate $1M additional sales to compensate for $100K credit loss.     

Additionally, a credit insurance policy may help reduce Bad Debt Allowance.  The following video is very informative: 

Source: Simple Explain via YouTube

Because there is wide variation in policy cost and underwriting results our recommendation is to obtain a number of quotes.  The application process is not difficult.  The application includes forecasted sales, any credit losses, your terms of sale, the products / services being sold and usually your top 20 – 25 customers.   

Since 2004, Securitas Global Risk Solutions, LLC (“Securitas”) has helped clients develop credit and political risk transfer solutions that provide value on numerous levels. As an independent trade credit and political risk insurance brokerage, Securitas is focused on developing comprehensive solutions that meet the needs of clients, ensuring a complete understanding of policy wording and delivering excellent responsive service.

Tupperware Files for Chapter 11 Bankruptcy

Tupperware Files for Chapter 11 Bankruptcy

by | Sep 27, 2024 | Accounts Receivable Insurance, Credit Insurance, Trade Credit Insurance

Tupperware, known worldwide for its iconic plastic food storage containers, has filed for Chapter 11 bankruptcy. Years of declining sales, a failing business model, and a tough economy finally forced the company to file for Chapter 11 reorganization. 

 

Why it Matters

Tupperware’s liabilities are estimated between $1 billion and $10 billion. Compare that to its assets of only $500 million to $1 billion. This bankruptcy process aims to help Tupperware reorganize, but what does that mean for those waiting to be paid? 

 

By the Numbers

Here’s a snapshot of what Tupperware owes to its top 30 unsecured creditors: 

Creditor  Unsecured Claim Amount (USD) 
CHANG TSI AND PARTNERS LIMITED  $1,213,191.20 
BDO USA, LLP  $1,067,204.15 
FTI CONSULTING TECHNOLOGY LLC  $659,467.50 
SADA SYSTEMS INC  $593,548.88 
FM POLSKA SP ZOO  $570,438.12 
ORACLE AMERICA INC  $550,000.00 
…  … 
Total  $10,078,920.47 

 

 

 

 

 

 

Why Unsecured Creditors Should Care 

In a Chapter 11 case, unsecured creditors are often at the bottom of the payment list. Recovering anything can feel like a long shot. But that’s where a strategic partner, like Securitas Global Risk Solutions, can make a real difference. 

 

How Securitas Global Risk Solutions Helps

  1. Reducing Risk: Securitas Global Risk Solutions specializes in trade credit insurance, which protects suppliers from non-payment risks. 
  2. Improving Future Deals: Going forward, suppliers and vendors can protect themselves by using our services to insure future credit exposures. This way, if Tupperware (or any other customer) falters again, they won’t be left empty-handed. 
  3. Expedited Claims Support: As experts, we help creditors understand and expedite insurance claims, maximizing their recoveries in non-payment scenarios. 

 

 

 

 

 

 

The Path Forward for Tupperware

For Tupperware, Chapter 11 is a chance to reorganize, cut costs, and—hopefully—emerge as a more agile, tech-driven company. Laurie Ann Goldman, President and CEO, hopes the process will help the company “transform into a digital-first, technology-led company.” 

But for unsecured creditors, that’s little comfort. They need protection now and in the future. Partnering with a reliable broker like Securitas Global Risk Solutions ensures that, even when the unexpected happens, they get paid. 

 

 

 

 

 

 

Bottom Line

The Tupperware saga is a cautionary tale. As creditors navigate this complex bankruptcy, having the right protections in place isn’t just smart—it’s essential. 

If you’re a supplier dealing with risky contracts, consider securing your payments through trade credit insurance from Securitas Global Risk Solutions. Because when companies go bust, you shouldn’t go down with them. 

 

Since 2004, Securitas Global Risk Solutions, LLC (“Securitas”) has helped clients develop credit and political risk transfer solutions that provide value on numerous levels. As an independent trade credit and political risk insurance brokerage, Securitas is focused on developing comprehensive solutions that meet the needs of clients, ensuring a complete understanding of policy wording and delivering excellent responsive service.

The Impact of a Credit Loss on a Company’s Financial Performance

The Impact of a Credit Loss on a Company’s Financial Performance

by | Sep 19, 2024 | Accounts Receivable Insurance, Credit Insurance, Trade Credit Insurance

Credit losses can have a significant impact on a company’s financial health. When a client fails to pay, the effect can be seen on both the income statement and balance sheet. Understanding how these losses affect your financials is crucial for maintaining stability and planning for the future. 

 

 

Why It Matters 

A credit loss occurs when a customer is unable to fulfill their payment obligations, whether due to insolvency, financial hardship, or other factors. The bottom line: When this happens, your company absorbs the loss, which can reduce profitability, strain cash flow, and weaken your financial position. 

 

 

The Income Statement Impact 

The income statement shows your company’s financial performance over a specific period. A credit loss directly impacts your profitability. 

  • Revenue reduction: When an invoice goes unpaid, you don’t receive the expected revenue. This results in a direct hit to your top-line earnings, reducing the total revenue reported. 
  • Increase in expenses: Credit losses often require setting aside funds as “bad debt expense” to cover anticipated non-payments. This increase in expenses lowers your net income, affecting your overall profitability. 
  • Net income drop: The combination of reduced revenue and increased bad debt expenses causes your net income to drop. What you need to know: Credit losses can significantly reduce profitability, even if your sales figures remain strong. 

 

 

The Balance Sheet Impact 

The balance sheet provides a snapshot of your company’s financial position at a specific point in time. Here’s how a credit loss impacts it: 

  • Accounts Receivable (A/R): Accounts receivable is the money owed to your company by customers. A credit loss means that certain accounts may need to be written off, reducing the total A/R value on your balance sheet. 
  • Allowance for doubtful accounts: Companies typically set up an allowance for doubtful accounts, which is a contra-asset account that reduces the total value of A/R. Credit losses increase this allowance, reflecting the risk of future uncollected payments. 
  • Shareholders’ equity: As credit losses reduce net income, retained earnings also decline. This weakens the company’s equity position, making it less attractive to investors. 

Be smart: Protecting your company from credit losses with credit insurance can prevent these negative impacts. 

 

 

Sample Case Study: ABC Manufacturing 

Let’s explore the impact of a credit loss through the lens of a hypothetical company, ABC Manufacturing. 

Background: ABC Manufacturing supplies industrial equipment to businesses around the world. One of their major clients, XYZ Corp, files for bankruptcy and fails to pay a $100,000 invoice. 

Income Statement Impact: 

  • Revenue loss: ABC Manufacturing must write off the $100,000 as a loss. This means that despite the sale, the revenue won’t be realized, reducing their top-line revenue by $100,000. 
  • Bad debt expense: To account for the loss, ABC also records a bad debt expense of $100,000. This increases their operating expenses, further reducing net income. 

Before the credit loss: 

Revenue: $5,000,000 

Expenses: $3,500,000 

Net Income: $1,500,000 

After the credit loss: 

Revenue: $4,900,000 ($100,000 less) 

Expenses: $3,600,000 ($100,000 added) 

Net Income: $1,300,000 

Balance Sheet Impact: 

  • Accounts receivable: Before the credit loss, ABC Manufacturing’s accounts receivable stood at $500,000. After writing off the XYZ Corp invoice, A/R is reduced to $400,000. 
  • Allowance for doubtful accounts: ABC now has a higher allowance for doubtful accounts, reflecting the increased risk of future non-payments. 
  • Shareholders’ equity: With net income reduced by $200,000, retained earnings drop, and shareholders’ equity declines, weakening ABC’s financial position. 

Before the credit loss: 

Accounts Receivable: $500,000 

Shareholders’ Equity: $2,000,000 

After the credit loss: 

Accounts Receivable: $400,000 

Shareholders’ Equity: $1,800,000 

 

 

What’s Next 

To mitigate the impact of credit losses, companies should implement proactive measures like credit risk management, trade credit insurance, and regular reviews of clients’ financial health. Go deeper: Consider working with a broker to tailor a credit insurance policy that fits your business needs. 

 

 

Conclusion 

Credit losses can quickly undermine a company’s financial health, affecting both the income statement and balance sheet. The bottom line: By understanding the financial impact and taking preventive measures, businesses can safeguard their profitability and maintain strong financial stability. 

 

 

Since 2004, Securitas Global Risk Solutions, LLC (“Securitas”) has helped clients develop credit and political risk transfer solutions that provide value on numerous levels. As an independent trade credit and political risk insurance brokerage, Securitas is focused on developing comprehensive solutions that meet the needs of clients, ensuring a complete understanding of policy wording and delivering excellent responsive service.

The Ins and Outs of Export Credit Insurance

The Ins and Outs of Export Credit Insurance

by | Sep 9, 2024 | Credit Insurance, EXIM, Export Credit Insurance

 
 
Navigating international markets is exciting but fraught with risks, especially when it comes to getting paid. Export credit insurance (ECI) is the solution that can safeguard your business from the uncertainties of global trade, ensuring your receivables are protected even when buyers can’t pay. At Securitas Global Risk Solutions, we help companies harness the power of export credit insurance to grow confidently.

 

 

 

 

What is Export Credit Insurance?

Export credit insurance is designed to protect exporters from the risk of non-payment by foreign buyers. Whether the default is due to buyer insolvency, political instability, or economic changes, ECI ensures that your business is financially secure. This safety net not only protects your cash flow but also opens doors to new markets with reduced risk.

 

 

 

 

Why Do You Need Export Credit Insurance?

 

Protection Against Non-Payment

    • Risk: When dealing with international buyers, you’re exposed to risks like political upheaval, currency issues, and economic instability.
    • Solution: Export credit insurance mitigates the financial blow if your buyer fails to pay due to any of these risks, allowing you to keep your revenue intact.

Access to New Markets

    • Risk: Expanding into unfamiliar international markets often comes with higher credit risk due to limited information on potential buyers.
    • Solution: With ECI, you can confidently extend credit to new overseas customers, knowing that your transactions are insured.

Maintaining Cash Flow Stability

    • Risk: Late payments or non-payments from international buyers can severely impact your cash flow, putting your operations at risk.
    • Solution: ECI ensures that your cash flow remains stable even in the face of payment delays or defaults, providing financial continuity for your business.

Strengthening Your Competitive Position

    • Risk: Offering extended credit terms without protection increases your exposure to payment risks, limiting your ability to compete globally.
    • Solution: Export credit insurance allows you to offer competitive credit terms to buyers, helping you win more deals while minimizing risk.

 

 

 

 

Key Features of Export Credit Insurance

 

Comprehensive Coverage

    • ECI protects against both commercial and political risks. This includes buyer insolvency, protracted default, and political events like war, expropriation, or currency inconvertibility that prevent payment.

Global Reach

    • Export credit insurance can cover transactions with buyers in a wide range of countries, giving you the flexibility to explore diverse markets and customer bases with confidence.

Customizable Policies

    • At Securitas Global Risk Solutions, we understand that each business is unique. We work with you to create an export credit insurance policy that fits your specific needs, whether you’re targeting high-risk markets or diversifying your international client base.

 

 

 

 

How Export Credit Insurance Supports Business Growth

 

Expanding Sales with Confidence

    • Export credit insurance allows you to pursue new business opportunities in emerging markets without the fear of non-payment. It gives you the confidence to offer credit terms that will attract more buyers, boosting sales while reducing risk.

Improving Access to Financing

    • Banks and lenders are more likely to offer favorable terms to businesses with export credit insurance, as it reduces the lender’s risk. This can give you access to additional working capital to invest in your business.

Minimizing Risk in Volatile Markets

    • Global markets can be unpredictable, especially in regions with political instability or economic challenges. ECI allows you to protect your transactions in high-risk markets, helping you expand globally without jeopardizing your financial health.

Building Stronger Customer Relationships

    • By offering credit terms backed by export credit insurance, you can develop long-term, trust-based relationships with your international customers. This can lead to repeat business and stronger partnerships, even in uncertain economic climates.

 

 

 

 

Choosing the Right Export Credit Insurance

Selecting the right export credit insurance policy depends on your business goals, market focus, and risk tolerance. At Securitas Global Risk Solutions, we guide you through the process of identifying your key risks and developing a tailored policy that offers comprehensive protection for your international sales.
 
 
 
 
 
 
 
 
 
 
 
 
  1. Assess Your Markets: Identify the countries where you face the greatest payment risks, whether from political instability or economic volatility.
  2. Evaluate Buyer Risk: Consider the creditworthiness of your foreign customers and their history of timely payments.
  3. Customize Your Coverage: Work with an expert brokerage like Securitas Global Risk Solutions to develop an ECI policy that aligns with your business needs, ensuring that you’re covered for the most relevant risks.

 

 

 

 

Conclusion

Export credit insurance is essential for any business engaging in international trade. It not only protects you from the uncertainties of global markets but also helps you expand your business confidently. At Securitas Global Risk Solutions, we specialize in creating tailored export credit insurance policies that align with your specific needs and growth ambitions. Reach out to us today to learn how export credit insurance can support your international business ventures.

 

 

 

Since 2004, Securitas Global Risk Solutions, LLC (“Securitas”) has helped clients develop credit and political risk transfer solutions that provide value on numerous levels. As an independent trade credit and political risk insurance brokerage, Securitas is focused on developing comprehensive solutions that meet the needs of clients, ensuring a complete understanding of policy wording and delivering excellent responsive service.

Credit Insurance Vs Letters of Credit: What Gives?

Credit Insurance Vs Letters of Credit: What Gives?

by | Sep 3, 2024 | Credit Insurance, Export Credit Insurance, Trade Credit Insurance

As often discussed in credit management circles, a sale isn’t a sale until the seller receives payment for the goods or services.  How does a seller get paid?  For short term sales, two of the most common forms of payment are a letter of credit or extending credit / open account.  While both accomplish the same objective, there are significant differences between the options.  The letter of is more secure for the seller, because the risk of default has been reduced, but can limit sales.  Extending credit (open account) to the buyer increases the seller’s risk of non-payment, but because it’s advantageous to the buyer, can used as tool to facilitate sales.  What if the seller could extend credit to buyers to generate sales while limiting risk of non-payment?  The solution is credit insurance.  Let’s look at both payment options in more detail.

 

 

What is a Letter of Credit?

A commercial letter of credit is a document sent from the buyer’s bank that guarantees the buyer’s payment to a seller will be received on time and in the correct amount.  If the buyer is unable to make a payment due to the seller, the bank issuing the letter of credit will be required to make payment.  In a volatile global economy, where there a longer transit times, less knowledge of the buyer, there are advantages to selling on L/C.

 

Seller advantages:

  • Buyer is assured payment
  • Terms of the sale are negotiated in the letter of credit document
  • Funds are transferred from the issuing bank to the seller’s bank

While there are advantages to the seller, there are disadvantages to the letter of credit itself and for the buyer.

 

Disadvantages:

  • Seller – It can be challenging to negotiate the key terms
  • Seller – Transactions details can be missed leaving room for error
  • Buyer – Letters of credit can be costly. The buyer bears the brunt of the fees which typically range from 75 bps in developed countries to 150 bps or more in underdeveloped countries
  • Buyer – Letters of credit tie up the buyer’s working capital. The bank will require the buyer to set aside the funds as a condition of issuing the letter of credit.  This either reduces their borrowing capabilities or access to cash.

Letters of credit are an effective payment method assuring the seller is paid for goods or services.  However, the benefits generally accrue to the seller, while there are a number of disadvantages for the buyer.

 

 

What is Credit Insurance?

Credit insurance is an insurance policy that protects the insured (seller) from non-payment.  It allows the seller to extend credit (open account) to the buyer while reducing the risk of not being paid for their products or services.  Credit insurance can be a win-win for both the buyer and seller.

 

Seller advantage:

  • Sell more. Extending credit makes it easier for your customers to buy your products. Financing is critical aspect of any sale.  If your customer can get a better deal which includes credit from your competitor, you are at risk of losing the sale and your customer.
  • Credit insurers are very good at determining credit worthy buyers and credit limit to extend. If they make the wrong credit decision, the insured can file a claim for non-payment.  That’s a huge benefit often overlooked when evaluating credit insurance options.

 

Buyer advantage:

  • Reduced borrowing costs
  • Improved working capital

The following graphically shows impact of the terms of sale on buyer’s willingness to buy:

 

Conclusion 

 Financing is a critical component of any sales transaction.  Ideally, the seller would like to sell on secured basis, but for most cases this isn’t realistic.  Companies are increasingly recognizing that credit insurance is a valuable tool in their overall enterprise risk strategy.  They can extend credit to facilitate sales, and also reduce enterprise risk by protecting one of the largest assets on their balance sheet.   

 

Since 2004, Securitas Global Risk Solutions, LLC (“Securitas”) has helped clients develop credit and political risk transfer solutions that provide value on numerous levels. As an independent trade credit and political risk insurance brokerage, Securitas is focused on developing comprehensive solutions that meet the needs of clients, ensuring a complete understanding of policy wording and delivering excellent responsive service.