As companies have expanded and globalized over the past 20 years, many have found that using global credit insurance to protect accounts receivables from unforeseen losses due to nonpayment can be critical to their success. Marsh’s Trade Credit Practice helps companies to operate through unpredictable economic cycles by providing solutions to manage receivables’ risks and a wide range of other trade finance issues.
Trade credit insurance can help a company protect accounts receivable from losses caused by the insolvency, protracted default, or political events.
Coverage may be structured according to your specific requirements, including:
- Whole Turnover: A single contract to insure all of your firm’s receivables;
- Key Accounts: A contract designed to insure only your largest customers or another defined band of customers; and
- Single Debtor: A policy designed to insure exposures related to one customer.
Each of these contracts can be designed for domestic sales, export sales, or a combination and can be defined regionally or globally. For many businesses, trade credit insurance provides an efficient use of capital. Coverage costs typically represent less than one percent of sales revenues.
Trade credit insurance is for companies that:
- conduct business on open, unsecured credit terms or have significant bad debt reserves;
- have heavy export activity or international receivables;
- want their enterprise risk management philosophy to be applied to treasury and financial management;
- have accounts receivable concentrations to only a few accounts;
- seek asset-based lending arrangements with banks; and
- may not collect sufficient credit information on their own customers and value a credit partner to access credit risk.
Accounts receivable are a key cash-flow component that can be protected in a simple and cost-effective manner. A well-designed trade credit program can help protect against unexpected bad debts, helping to preserve cash flow and protect profitability.
As industry consolidation continues, you may find increased concentration of customers within your portfolio without a significant increase in sales. Credit insurance may be able to address these risks and be disclosed within financial statements to provide assurance to stakeholders.
Companies that sell goods on open terms need to consider the potential risk of loss. Marsh designs solutions that allow your company to extend credit without increasing the risks associated with bad debt. By purchasing credit insurance, your organization may be able to:
- increase sales by extending more credit;
- confidently sell to new customers in a variety of regions; and
- offer competitive payment terms by transferring credit risks to an insurer.
Support Financing Arrangements
Companies may improve their financing arrangements with trade finance banks by increasing advance rates, improving pricing, or obtain other structural benefits to existing financing arrangements.
Programs may also be designed to support the sale of accounts receivables to financial institutions in a simple format to improve certain key financial ratios, including cash flow, leverage, and return on assets. Banks that understand trade credit insurance may also be able to provide more flexible financing for your larger customers, your privately owned customers without full financial disclosure, and others by using the unique capabilities of the insurance market as opposed to capital market solutions or on-balance-sheet lending.
Many trade credit insurers maintain extensive databases of companies worldwide, including information on balance sheet strength, sales histories, payment records, and financial ratios. A trade credit insurance policy can help you gain access to this data to support your sales expansion.
Marsh also provides our industry leading credit insurance platform (MarshTrade Credit powered by FGI Trust) that provides key data on customer information and available capacity, among many other features.
Promote Corporate Governance
A well-designed credit insurance program shows stakeholders that your organization has a proactive risk strategy to address known risks within your customer portfolio. These programs may be disclosed within your organization’s financial statements to demonstrate a conservative, prudent approach to risk management.
As the world leader in our industry, Marsh delivers insurance brokerage, risk management, and advisory services and solutions to clients of all sizes. With our global reach and local presence, Marsh accesses insurance information to help companies understand the potential risks in individual countries as they determine how and where to focus international sales efforts.
Marsh’s Trade Credit Practice is an award-winning team of 230 global credit experts serving clients across a variety of industries. Our trade credit expertise earned recognition from readers of Trade Finance Magazine as the Global Broker of the Year for two consecutive years.