Lenders: Managing Loans Backed with Credit Insurance

American_CashAfter giving a presentation to the lending team at a bank recently, I was asked “What do we need to watch out for when using credit insurance on a loan?” Great question!

In my last post, I described how a business can use credit insurance to access more financing. As lenders rely on a policy to advance more money and provide borrowers with more financing, there are four steps to remember to safely manage a loan backed by credit insurance.

Always be the beneficiary

Like all other insurance policies, trade credit insurance policies can be assigned. When loaning money, the lender should always be the policy beneficiary, which means that they essentially co-own the policy. This gives them rights that extend beyond simply being the loss-payee. Specifically: Continue reading

Increasing Access to Financing with Credit Insurance

File Feb 01, 11 51 06 AMA business investor called today to discuss a company he owned. “The company is growing, with new contracts coming from mostly outside the US”, he said. “The problem is that we don’t have enough working capital to support the growth and our lender isn’t giving us full availability on our line of credit either.” We went on to discuss the issues and potential solutions that trade credit insurance could provide.

Over half of my clients found me because of this same situation – the problem of accessing enough working capital through their line of credit. Fortunately, trade credit insurance offers a cost-effective way to access more financing.

How?

One of the biggest benefits of credit insurance is its ability to increase access to working capital. When a business insures its receivables, the credit insurance policy becomes an additional measure of security on the lender’s collateral and on the cash flow of the business. The result is that lenders can offer more financing for their borrower. Continue reading

Recent Signs of Economic Trouble Ahead

Historically, we have a recession in the US every 5 to 7 years and on that basis, we’re due for the next one now. The economic cycle has come full circle and signs o636087614564845168-autonationf contraction are starting to pop up.

Over the last month, I have shared at least four articles on social media describing trends that are troublesome to those of us who are trying to grow our business. Here’s a summary recap for your reading pleasure. Please give me your comments, I’d really like to hear your thoughts and observations. Continue reading

Growth Through Exporting: How to get paid?

Memphis Miss River BridgeIn his recent blog post, Bill May with High Value Manufacturing Consulting wrote about the growth opportunities for SME’s in exporting. The figures are impressive and the business case for expanding outside the borders of the US is convincing.

Consider these:

  1. According to the International Trade Administration, 95% of the world’s consumers are outside the United States. The export market for US companies is huge and companies who sell only domestically are reaching only a small share of potential customers.
  2. Exporting helps SME’s diversify their customer portfolio and protects from slower growth in our domestic economy. This means that the economic risk is spread across multiple countries and regions of the world. For companies whose products or services are very industry-specific, exporting opens opportunities within their industry world-wide.
  3. Tax laws let you save money and cut taxes on export sales. Using tools such as an IC-DISC (Interest Charge Domestic International Sales Corporation), US companies can reduce taxes by 50% on up to half its export sales.
  4. With US manufacturing investment in other countries, US companies can capture increased business with existing domestic companies by supplying the plant locations outside the US in other countries. The auto industry’s expansion into Mexico is a good example.

Continue reading

Back to Basics: What is trade credit insurance?

Trade credit insurance or accounts receivable insurance is a financial tool that protects a company’s cash flow when customers don’t pay for the products or services they’ve ordered. Credit insurance covers foreign and domestic accounts receivable and is used by companies in all industries around the world.
IMG_0049

How does it work?

The client submits the customers to be insured to Coface along with the credit limit (coverage amount) needed. Continue reading

Is your crystal ball dirty?

An insurance broker contacted me recently because a large, European-owned industrial manufacturer had expressed interest in trade credit insurance. They had one particular customer that had become a concern, although they were quick to point out that they had never had any problem collecting their accounts receivable from this customer. Nevertheless, the customer could file bankruptcy or their accounts recrystal ballceivable could become un-collectible at any moment, or at least that was the concern.

The broker went on to explain that this key client had all the in-house financial resources to manage their risk (credit, treasury management and collection departments), so they were very capable, unlike smaller firms without these resources.

Continue reading