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Credit Insurance
Pre-Bankruptcy Puts
Single invoice Factoring
Expanding Overseas
Vendors currently have few credit risk management options to minimize exposure to customers experiencing liquidity issues. If credit insurance coverage is not available to cover a publicly traded entity (some privately held companies as well), an accounts receivable credit put option may be available to protect a supplier from customer bankruptcy.
A credit put option is designed to pay 100% of the bankruptcy loss without any deductibles or co-insurance. The accounts receivable credit put option is 100% non-cancelable and can be structured either for short-term coverage or long-term coverage with a maximum of 3 years.
While this form of coverage is more expensive than regular trade credit insurance, it provides a huge safety net for suppliers who extend credit to a publicly or privately held company where other credit insurance alternatives are not available.
Where credit insurance coverage is normally available on a significant pool of creditworthy customers within a portfolio, a put option can be tailored for specific customer who may not be creditworthy. This customer, usually a publicly traded company (although some private companies can also be underwritten), can then be covered under the put option and the insurance company will assume the entire bankruptcy risk, irrespective of whether that customer is investment-grade or highly distressed, or whether domestic or foreign.
While coverage of an account under regular trade credit insurance may be cancelled from time to time, there is no risk of cancellation for the put option. In addition, eligible receivables are not limited to those created during the life of the put contract. A vendor can also be covered for receivables that were established prior to the start date of the put option. For vendors who want to extend credit to risky customers who cannot otherwise qualify for credit insurance, credit put option is a viable alternative which will minimize exposure to risk.