Are you helping your clients protect their largest asset? Are you looking for ways to add value to your client relationships? To be a trusted adviser who points out unforeseen risks in their business? Would it be helpful to differentiate yourself from competition?
If the answer to any of these questions is “yes”, read on.
What’s a company’s largest asset?
Coface research shows that accounts receivable comprises 36% of a company’s assets and is worth an estimated $72 trillion. This makes a/r the largest asset on most company’s balance sheet, surpassing even fixed assets like buildings and real estate.
Additionally, consider the list of assets in a business. All of them are typically insured to protect against loss or exposure.
- Buildings
- Plant and equipment
- Inventory
- Trucks and delivery vehicles
- Owner’s lives
Which asset is missing? Accounts receivable. In a manufacturing or industrial business, insurance protection is in place from the time raw materials are acquired through the assembly process. The finished product is protected while in inventory. It’s also protected in shipment, no matter whether the shipping is inside the US, overseas, by truck, air or sea.
Once the sale is made and the product is delivered, the value is at its highest point… and it is no longer protected. The risk shifts from a physical risk to a financial risk of non-payment and the umbrella of protection is gone (for most people). This is where you and I can help!
Why cover this asset?
Protection from financial risk has become critical in the last 10 years. The Great Recession was about financial risk as mortgage backed securities, financial markets and individual company financial performance were wiped out. Toxic assets with more debt than worth were everywhere. Financial risk started to exceed physical risk for arguably the first time.
Today, the principal threat to businesses is no longer fire, flood or theft. Now the greatest risk facing companies is credit risk – the risk that a customer will go bankrupt owing a lot of money.
Credit risk directly impacts sales growth, cash flow and working capital. Any time an invoice is not paid, the financial impact is immediate.
Compared with other assets, accounts receivable default rates are much higher. The chance of a customer not paying his bill is far greater than the chance of a building or or a piece of equipment being damaged by a storm. Bad debt of 1% is not unusual. Sometimes it’s higher. 1% bad debt happens every year versus a building being storm-damaged once in a lifetime.
In 2015, 29,903 businesses failed in the US alone. In 2016 the number grew by 28%. 25% of bankruptcies happen because of non-payment by a customer.
What’s the solution?
Businesses need to protect their largest asset, the trade credit or accounts receivable representing money owed by their customers. Trade credit insurance protects the unpaid credit balance from sales made to approved customers. With a Coface policy, you help your clients in three significant ways:
- Prevention of bad debts
- Debt collection
- Indemnification
For more, read my article, “Back to Basics: What is Trade Credit Insurance?”
Not only can you help your clients by protecting their largest asset, you help them increase sales, improve their access to bank financing and operate more efficiently.
At the same time you differentiate yourself from competition and offer a unique perspective on addressing financial risk. You also become more of a trusted adviser.
How can I help?
For more information about how a Coface credit insurance policy can help you help them, signup to receive my updates and announcements and contact me directly. I’m happy to discuss specifics and help you with your clients.
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