Keep getting paid

How can trade credit insurance help?

Trade credit insurance is essentially a business insurance product that indemnifies the seller against any losses from the nonpayment of debt. When you insure accounts receivable for that business, if that business were to become insolvent, the insurance product would pay the debt from that insolvency.

The insurance company may have recovered part of that money behind the scenes, but what’s happening to you is you’re getting paid your money now.

In today’s market, where lenders are absolutely brutal to the companies that try to get loans, insuring your accounts receivable — which is oftentimes the largest asset on your balance sheet — with an insurance product gives the bank the comfort that there is protection. The bank can then lend more on that asset, or you may feel more secure in extending more credit to an existing customer, thereby increasing sales. Securing your receivables with a fully insured product can grow your business.

What does trade credit insurance cover?

Essentially, what you are insuring against is insolvency, bankruptcy and protracted or slow payments. In some instances, you might get paid but not in the 30-day term you were expecting. Maybe you’ll get paid a year from now.

Based on the policy you purchase, the insurance company could pay you to keep your business flowing, and then it will wait for that payment on the other end.

How can insurance help with the additional unpredictability of international accounts?

Banks are not likely to lend against international sales or international accounts receivable. It’s just too risky. But by insuring the international exposure, you can borrow against that asset because it’s protected.

By insuring that accounts receivable, an insurance company is going to step in and pay you your lost dollars and keep your business afloat. As many companies continue to globalize, they can expose themselves not only to lost receivables but also open themselves to very precarious political risks.

One factor you have to consider is world currencies. You could have a collapse of a currency, which causes a business failure overseas. You could have a physical war or insurrection that prevents your vendor from being able to perform your business function for you. You could even have the assets of that company confiscated.

Trade credit insurance can help you to grow your sales and profits, and because it allows you to extend larger, more competitive credit limits to companies, you can extend your payment term to make them feel more secure. It protects your cash flow and helps control the political risk when you deal with foreign countries.

Jonathan Theders, CPIA, is the president and chief operating officer of Clark-Theders Insurance Agency. Reach him at (513) 779-2800 or [email protected].