No surprises

It’s clear that 2008 was the year of surprises in the business world. The market was ever-changing, many businesses surprised consumers by closing
their doors, and some of the country’s
biggest businesses required government
assistance to stay afloat. If a business
owner is able to find a tool at a relatively low cost that can assist in preventing
surprises, then it is worth investigating.

Trade credit insurance can be that tool
for many companies. This coverage is a
risk management tool that helps business owners protect themselves from
the exposure to bad debt losses from the
companies with which they are doing
business, says Charles Bernier, president of ECBM Insurance Brokers and

Smart Business spoke with Bernier
about trade credit insurance, the protection it can offer a company and why this
may be a better time than ever before to
seek out such coverage.

What is trade credit insurance?

Trade credit insurance is asset security.
It prevents a devastating loss to one of a
company’s biggest assets — accounts
receivables. It offers cash flow protection against unforeseen nonpayments,
slow payment or insolvencies.

Uninsured, you can only absorb a certain level of risk. Trade credit insurance
allows you to take more risk. Trade credit insurance allows for increased borrowing power on your line of credit, normally at more favorable rates.

Is this coverage more important in today’s

With many businesses unexpectedly
closing their doors each day, this type of
coverage can be very beneficial to the
protection of your organization. Such
coverage may help grow your business in
hard times by making suppliers or financial institutions more comfortable to
extend lending options to your business.

In many businesses, there are multiple
layers of vendors. You may have a manufacturer, wholesaler, regional distributors and others. If one layer takes a hit
from an unexpected event, it could affect
all members of the chain. With credit
insurance, you can protect your business
from others’ unexpected misfortune.

Why is trade credit insurance important to
the success of a business?

The research involved with trade credit insurance allows you to collect data
from the marketplace about the companies to which you are extending credit,
making all parties involved safer. It helps
to increase sales while mitigating the
risk you have in other companies’ financial position.

For smaller businesses, this insurance
may increase their borrowing power and
ease restrictions on their personal lending options. If nothing else, the credit
insurance process will help you increase
your understanding of your clients’ and
your vendors’ future and how their
future may affect yours.

Why are some companies hesitant to invest
in trade credit insurance?

In some cases, companies are not
aware that such insurance is available.
Others may believe that the cost would
outweigh the benefit. This product has
been available for many years and is
used more heavily in Europe where it
has historically been harder to obtain
financial information on foreign companies. Between the international business
development that has been increasing in
the U.S and the current economic situation, now is a great time to look at the
benefits of this product.

As for cost, it is based on sales and the
premiums run pennies on the dollar, but
your broker will be able to work with
you through the negotiation process.
You may be able to defer some of the
cost by obtaining lower interest rates on
your line of credit, also eliminating LOC
requests for international sales, or even
adding to the cost of your product or

Should every company have trade credit

Trade credit insurance can benefit
most companies. If nothing else, business owners really need to investigate
trade credit insurance. Through the
application process, they will learn more
about not only their own company but
also about all of the companies with
which they are working.

Most companies who enter the application process see the true benefit of this
type of coverage. Even if you decide
your company does not need to purchase trade credit insurance, the
process provides a new perspective on
your clients, what credit is available and
what other people are doing with their

CHARLES BERNIER is president of ECBM. You may contact him at [email protected] or (610) 668-7100 x1223.