Company saved by trade credit insurance
What policy provisions should businesses consider or be ready to discuss with their broker when negotiating credit insurance? Pay specific attention to reps and warranties, exclusions and the length of the waiting periods. The insured will want the fewest reps and warranties and shortest claim times after a default occurs.
For example, sanctioned language that says if the U. Businesses considering insuring their accounts receivable should expect their insurance broker to understand their business and not just have insurance product expertise. In addition to mitigating risks to accounts receivables, savvy companies have used credit insurance to grow their businesses. They use it to increase domestic credit lines, offer extended terms to clients and explore new geographies.
In the face of today's changing domestic and global economic climate, recognizing future risks and managing trade receivables has become a priority for business leaders. Therefore we indeed intend to remain as attentive as possible and provide our clients with all required analyses. We will continue to research trade credit evolution as a key component of this. As with all content published on this site, these statements are subject to our Forward-Looking Statement disclaimer, provided on the right.
Receive the latest Allianz news. Follow Allianz in the social networks: Credit insurance helps companies to protect cash flow and profit against the risk of insolvency. Euler Hermes Group Paris, Jan 02, How did you come up with that figure? Isn't credit insurance quite costly, especially for medium and small companies?
So credit insurers have cleverly circumvented that logic by marketing their product as a sales enhancer, thus positioning their costs as a cost of revenue rather than a cost of protection. After all, what company doesn't want to increase sales? But, at the end of the day, costs are still costs regardless of where they appear on the general ledger and a closer examination of the costs associated with the sales-based credit insurance model, the most common, illustrates the paradox.
The problem is that 20 basis points is an aggressive market rate even in a zero-interest rate environment and a company with a BDA of 4. But look what happens if credit standards improve and the BDA decreases to 4. Changes in sales would likely further the loss.
As Peter Hickey, the director of credit for Gulf Oil and a one-time credit insurance user posted, "Over time, a credit insurer needs to collect enough in premiums to cover all the claims it pays plus make a profit so there are no free lunches with this or any insurance product. But as difficult as credit insurance may be to reconcile on the cost side, it's on the credit risk side where the necessity of the product really comes into question.
Here again, however, the proponents of credit insurance remain undaunted. They [credit insurers] have no sales function putting pressure on them. But skeptics who see the big picture say that using insurance to prevent credit losses is a form of protectionism that runs contrary to the free market principles from which the credit risk concept derives its very existence. What use is the credit risk function if there is, supposedly at least, no probability of a loss? Yet, that seems to be the view of many in Canada where credit insurance has a strong following.