If you are a B2B business owner, or work in the finance department of a medium size company, you must have found yourself looking for ways to maximize your profits while minimizing the risks. After all, this is just a best business practice mixed with a good dose of common sense.
You have your product line operating smoothly, your marketing department has made an outstanding job in positioning your name out there and your sales people are collecting order after order.
You have a long lasting relationship with your existing customers and welcome the new ones (after a quick and legit credit check) with open arms.
They buy, you ship, you invoice and then you wait for the payment to hit the bank account. Solid work.
Trading on credit terms
Let me now list some of the most common growing pains that, most likely, you will also be familiar with:
- My customer wants more days to pay
- My customer wants to place larger orders on credit terms
- My export customers are difficult to assess for credit worthiness, because of distance, language, or different regulations
- My customer wants me to ship to a country with political risk
- My customer is paying late and it’s affecting my cash flow
- My invoice has not been paid at all because my customer went bankrupt, and I can’t recover any past dues.
- I trust my customer, but his buyers are not paying him and he can’t pay me
- If I am not going to be paid for this last, massive order, I might end up being in deep waters!
It is not a secret that your accounts receivable are as important, if not more important, than all of your other tangible assets.
For this reason, you might already be familiar with letters of credit or financial guarantees.
Nevertheless, have you ever considered the concept of insuring your accounts receivable from default, late payment, political risks or other unforeseen circumstances? This solution is called Trade Credit Insurance. (If you have never heard of it, you can find some more resources here and a FAQ here, but it is essentially an insurance policy on credit term invoices you send to your domestic or export customers. If they do not pay you, the insurer will, according to the terms of your policy).
A 5 steps process to obtain credit insurance
Now that you know that a solution does exist, however, you might be left with more questions than before:
- Will they insure my clients and me?
- How much is credit insurance going to cost?
- How long will it take to get a quote and what type of obligations will I have?
- How does credit insurance really work?
We will leave the last point for another, more detailed post, but for now I would like to put you at ease when it comes to the first few other questions by explaining how the trade credit insurance quoting process works.
1) You can start by getting in touch with one of our Regional Offices. A licensed regional manager will explain what information is needed from you and will be able to advise you on whether credit insurance is the right tool for you, or if one of our other Special Products policies might be a better solution..
2) With the regional manager’s help fill an informational application to provide us with the most important factors required to properly price your policy. More specifically you will be asked to let us know about:
a. Your company: what do you sell, and how. What are your average agreed terms of credit for your customers and what “safety” checks you have in place. Knowing that you have already a solid process in place will lower the risks of insuring your business, and in return will keep the premium lower
b. Your customers: the top 15 are usually enough to gives us an idea of your buyer portfolio and allow our Risk Underwriters to review and assess their credit worthiness. We will not mention your name (unless you give us explicit authorization to do so, which greatly helps with obtaining information faster) if we have to contact your customers so that your privacy will remain safeguarded. We will also need to know the average sales for each of these customers which brings us to…
c. Your sales: what do you forecast your earnings will be during the policy year? How much will be domestic, and how much export? For the export portion, what countries will you sell to? Trading in some countries might be riskier and, of course, the higher the number of transactions and invoices (aka sales) you will generate in a year, the higher the risk that one or more will not be paid.
d. Your history: have you experienced any losses in the past few years? With what frequency and how badly have you been hit? What is the status of your current aging? All of this will help us better define your risk profile
3) With all of the information collected up to this point, our Commercial and Risk Underwriters will be able, usually within a week, to design a policy specimen with characteristics that meet your business needs, and will put together a quote to present you with our best offer.
The regional manager you are working with will go over the quote with you to answer any questions you may have and explain pricing.
4) Your policy premium will be calculated depending on all of the other features previously discussed (you, your customers, and your risk profile).
To give you an idea, the average premium rate for an average policy with an average risk profile is between 0.10% and 0.20% of your total sales.
Now look at your company’s bad debt reserve (if you have one) and start thinking how to better invest that sum. Cherry on top: your trade credit insurance premium might also be tax deductible.
Quotes are free of charge, you have no obligations and you can decide at any point that credit insurance is not right for you. We understand and we will be happy to look at your application the following year, in case anything changes.
5) After reviewing the quote, if you are happy with the terms presented, all we need is a signature, a handshake with your regional manager and, voilà, you are the proud owner of an Atradius Trade Credit Insurance policy.
From here, you will get to meet your dedicated Account Manager who becomes your personal representative going forward.
As you can see, it is not difficult to obtain a quote and you may find out that Credit Insurance is, after all, a great and affordable option to help you safely grow your business.
Trade safely, it’s covered.
The statements made herein are provided solely for general informational purposes and should not be relied upon for any purpose. Please refer to the actual policy or the relevant product or services agreement for the governing terms. Nothing herein should be construed to create any right, obligation or responsibility on the part of Atradius, including any obligation to conduct due diligence of buyers or on your behalf. If Atradius does conduct due diligence on any buyer it is for its own underwriting purposes and not for the benefit of the insured or any other person.
Additionally, in no event shall Atradius and its related, affiliated and subsidiary companies be liable for any direct, indirect, special, incidental, or consequential damages arising out of the use of the statements made information herein.