Presentation on theme: "January 19 th, 2010 A Presentation to The Professional Credit and Financial Association of Calgary Ian Lydiatt InRisk Solutions Inc."— Presentation transcript:
January 19 th, 2010 A Presentation to The Professional Credit and Financial Association of Calgary Ian Lydiatt InRisk Solutions Inc. http://www.inrisksolutions.com “Trade Credit Insurance – What is it and How Can it Help Me?”
Trade Credit Insurance... Defined In simple words: It is a stand-by security in the form of an insurance policy with individual company coverage endorsements from an insurance company, that generally pays 90% of any individual company accounts receivable/shipments exposures, if there is a non-payment or default by one of a company’s client endorsees who have a accounts receivable owing.
Trade Credit Insurance... Defined It is conditional to: An executed trade credit insurance policy boiler plate + additional amendments specific to unique negotiated terms Each company client being presented to insurer and pre- approved in advance of any shipment Each company client having a specific endorsement to a specified amount (ceiling amount) with a general 10% deductable on each claim Any specific conditions for each endorsement coverage (i.e. – a guarantee held or a Letter of Credit for 50% of any value) The policy will have an annual cap or limit on total claims
Trade Credit Insurance Specific company endorsements can be withdrawn for post- shipments upon notification Cannot be withdrawn on shipments prior to date of cancellation notice provided
Trade Credit Insurance There are normally two types of trade credit coverages: 1. Protracted Default – in a case where endorsed company simply fails to pay within terms 1. Payment is usually delayed by a built-in 90-180 days – accounts for a cooling off period in case of subsequent resolve and payment 2. Bankruptcy or Receivership - business closure or failure 1. Payment is usually within a standard 30-60 days (subject to negotiation)
Trade Credit Insurance In addition to the standard Protracted and Bankruptcy coverages... You can negotiate additional Forward Price Cover Allows for a fixed price term contract If endorsed company goes off-cover at some point during term: All shipments are covered up to cancellation notification receipt Allows recoupment of any pricing differential between contract price and market price (if lower – over the balance of contract)
Trade Credit Insurance... Strategies Always always always...... negotiate through a well known Broker Going direct... clout is non-existent as you are one company, even if yours is large >> vs. broker who does this daily Going direct saves zero monies – insurers always protect broker A large broker has his fees built in – free to you without cost!
Trade Credit Insurance... Strategies Get at least three quotes as coverages not always the same Ask for references on claims payment values equal to yours A few insurers by reputation force you to sue – know them!
Trade Credit Insurance... Strategies Be sure to check out insurers for claims payment history When speaking with other insurer clients, ask on... Competitors > to broaden your scope of insurers Claims payment record > to be sure there is a good consistent claims paid record To find out how long they have had a policy = happiness To understand frustrations if any To hear if any others they know have had problems with current insurer
Trade Credit Insurance... Question: Why don’t more North American companies use trade credit insurance? Answer: The unspoken truth:Job protection. Credit insurance annual costs thought as large and credit people think why does a company need my services if they have credit insurance?! In reality, if there isn’t a good credit person and/or credit policy, credit insurance may not be approved by insurer; sometimes even a condition
Trade Credit Insurance... Mechanics... Premiums paid and based on total presented portfolio Costs can be spread out over each year Policy and costs provide an even base line vs. bad debts @ 0.5% You can cover a selected broad cross-sectional group Premium rate based on broadness of portfolio You do not have to cover premium clients Premiums vary from less than 0.5% to over 1% Based on your type of business and risk profile per each endorsee
Trade Credit Insurance... Advantages: Your competitors won’t know you have it Your customers won’t know you have it on them Costs are usually justified when trying to sell a large contract Premiums usually less than or equal to an allowance for doubtful accounts No surprises for YE results Besides credit, you now have another set of external eyes on each approval prior to shipment Premiums usually less than or equal to an allowance for doubtful accounts
Trade Credit Insurance... One last - AND MOST IMPORTANT - Advantage: Having a Trade Credit Insurance Policy in many cases gets you a higher bank line based on the higher quality of your A/R... This means the bank could increase leverage from 60% to 80% of your A/R because having insurance increases quality
Trade Credit Insurance... Disadvantages: 1. It can take 24-48 hours per endorsement if insurer doesn’t know endorsee – be sure to build in required response time 2. Increases for existing endorsees can take same time 3. Each large endorsement request takes time to present 4. Increases reporting and tracking time 5. Additional reporting requirements Except for #3, all of above can become advantage if a threshold amount on required approvals is automatically given on your policy prior to having to request coverage