Almost every month, I’m referred to a business who has interest in protecting their accounts receivable and cash flow using trade credit insurance… but only on a single buyer (customer). The conversation usually goes something like this:

“Yes, I’d like to learn more about credit insurance and how it works. I have this one account that I’d like to look at.”

Single-buyer policies

A credit insurance policy that covers one customer account is called a “single-buyer” policy. Policies that cover more than one account are called… you guessed it, “multi-buyer” policies. Here’s what you need to know about a single-buyer policy.

What is it?

As the name states, single-buyer policies are regular credit insurance policies that only cover a single customer account. They have a similar structure, pay claims on the same basis and function in the same way as multi-buyer policies.

Are they available?

Yes, they can be written but several conditions must be met. The buyer to be insured must generally be lower risk and have a very high risk rating. Average or below-average credit ratings are usually not eligible for coverage in a single-buyer policy.

What do you need to know?

1. A single-buyer policy makes sense when the amount of outstanding a/r is large… in the millions of dollars.
2. The premiums can be much higher than if a few more accounts are added. By insuring multiple accounts to create a segment of the company’s business to be insured.
3. Many times, the interest in insuring a single account is an attempt to reduce the cost of a policy. Almost always, the cost is actually less with a handful of other accounts added. This gives the insurance company a spread of risk and reduces premiums. I’ve seen annual premiums drop from $60,000 or more to less than $15,000. In the process, the policyholder gets what they want (the key account insured) but also covers other accounts for a lower premium.
4. The question behind the question: Why the interest in covering one account? Is it to reduce cost? Is it because they really only have one customer? Is there a feeling that they key account is the only one with risk? They may assume they only need to be concerned with the one large customer. Rarely are either of these true.

Conclusion

While single-buyer polices can be written, it’s almost always less expensive and more effective to look at a wider segment of customers. By considering the broader benefits of credit insurance, not only does the business reduce cost, they also gain the ability to:

• Mitigation of customer nonpayment risk
• Extension of more favorable credit terms to customers
• Extension of credit to new customers
• Obtaining better financing terms from lenders
• Expansion into new markets
• Reduction of the needed amount of bad debt reserves
• The business also benefits from the insurer’s expertise and gains peace of mind. For a recent example, see my article of how a client was helped.

To discuss your situation specifically, email me at tate_parker@coface-usa.com to set up a 15 minute phone call. It could make or save you thousands of dollars each year.