As many of us have come to understand quite clearly in the last few years, business transactions are not as secure as they used to be. Businesses rise and fall at the drop of a dime, and one may be left holding the bag without the chance for remuneration. How do you protect yourself in the event that your buyer becomes insolvent?
Trade Credit Insurance provides the protection companies need in such an event. The policy provides coverage for invoices or receivables that remain unpaid as a result of protracted default, insolvency or bankruptcy. Regardless of the commodity or service, Trade Credit insurance is applicable to any organization that is involved in Business to Business receivables, either domestic to domestic, or domestic to export.
When considering purchasing Trade Credit insurance, keep in mind that between 2008 and 2009, domestically 38% of businesses failed. All insurance carriers paid out in excess of $100 million in claims. The 4 most important reasons for having a Trade Credit policy are:
- Buyer Insolvency
- Catastrophic Loss: A debtor's inability to pay due to unforseen circumstances
- Increase Sales: Increased comfort level with new customers and extending credit
- Bank Financing: Higher advance rates for both domestic and export receivables
The following scenarios illustrate what Trade Credit can do to increase sales and protect your bottom line:
- A Computer company exporting to South America began with $3 million dollars. After purchasing TC insurance, they were able to extend credit, bringing their 1st year sales to $28 million.
- An Auto Parts distributor with $7 million in sales had an unpaid invoice for over $200,000. We came to find out that the account who the defaulted on the invoice had gone out of business. The TC insurance indemnified the Auto Parts distributor for 90% of the value of the invoice. Had they sustained a loss, this would have been catastrophic for a small business.
- A Brazilian exporter, exporting direct to Brazil, was in the midst of cash flow problems. Their TC policy enabled them to borrow up to 90% of the insured receivables.
In order to qualify for Trade Credit Insurance, you must have:
- Upward of $3 million in sales
- Business to Business receivables
- Year-end financial statements
- Bad debt loss
- Credit collection procedures
- Minimum of 1 year in business
In these uncertain times, don’t be caught without this very necessary layer of protection for your business.
For more information on trade credit insurance, please contact:
Debbie Williams
Director, Trade Credit Insurance
Director, Trade Credit Insurance
Tel: 954.267.8577
Cell: 954.914.1728
Email: dwilliams@seitlin.com
