Account Receivable Puts – IGA Trade Credit Insurance

Account Receivable Puts Options

Protect yourself from your customers worst event

100% Coverage if your Customer Files Bankruptcy

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 costly 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.

Disclaimer: Receivable Puts or CDS Coverage is Not an Insurance product. It’s an alternative to credit insurance and factoring and is a solution to the enormous risk you may not be able to cover otherwise.

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Up to 100% Coverage

Flexible Contract Term

No Cancelation Risk

Account Receivable Puts Options FAQ’s

How Much Does an Receivable Put Cost?

Cost is based on a number of factors and ultimately will be different for nearly every situation. Please contact one of our specialists for more details.

What's covered by a receivable put option?

You need to offer competitive credit terms to grow your business, but what if the financial condition of one or more of your customers is deteriorating? In the event of a bankruptcy or liquidation, how do you know you’ll get paid?

Purchasing an A/R put option gives you the opportunity—if a customer you’ve covered becomes insolvent—to sell your receivables from that debtor, without recourse, to an indemnifying financial institution.

Upon validation of your claim, you’ll get paid up to 100% of the value of your invoices…vs the amount, if any, you would have been able to recover on your own (without a put option) over the course of the debtor’s bankruptcy filing or liquidation process.

Receivable put options are available on a wide range of publicly-traded debtors, as well as large privately-held companies if their debt is traded in bond markets.

What is the difference between Account Receivable Puts and Trade Credit Insurance?

While Trade Credit Insurance provides protection for receivables, it comes with many contingencies. The market is locked into traditional agreements. In addition, insurance is very conservative when protecting receivables of a single customer and require a deductible (10%+). Often companies experience credit insurance cancellations and a common complaint is that credit insurers only want the good risk and not the customers that concern you.

When would the Receivable Put Option Pay Out?

A Receivable Put Option simply would pay your receivables outstanding when the customer files for bankruptcy. The contract typically has a limit to the maximum amount to be paid. So it would be the lesser of the outstanding receivables or the contract limit.

Can I just Hedge Directly and buy a CDS Myself?

Yes, you can. Depending on the your bank relationships, capital, and knowledge – there is a market you can use to hedge the risk. The primary challenge with this approach comes down to three main obstacles:

BASIS RISK: Basis Risk means that the payout of your hedge does not match the amount of your exposure. Also, often times the legal entity that you buy CDS on may not match your customer.

EXPERIENCE: Purchasing Credit Default Swaps or Shorting the Bond Market are not simple trades to be executed by any treasury manager. There could be challenges with locking the trade in, counterparty risk, challenges with execution, and accounting requirements to constantly mark the asset to market value.

CAPITAL: With a derivatives instrument or complex bond trade, comes margin and collateral.

Are every Receivable Put provider's contract the same?

Absolutely not. There are very material differences that need to be understood and may be negotiated.

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