Trade Credit Insurance is a protection on your accounts receivable against risks of non-payment of goods or services by your buyers whether they are located in the same country as your company (domestic risk) or in another country (export risk). It covers non-payment as a result of insolvency of the buyer or non-payment after an agreed number of months after due-date (protracted default). It can also insure the risk of non-payment following an event outside the control of the buyer or the supplier (political risk cover), for example the risk that money cannot be transferred from one country to another.
An average of 40% of a company’s assets are in the form of trade debts that constitute one of the most vulnerable assets when it comes to risk of loss. A company’s balance sheet is critically dependent on trade debt payment to ensure cash flow & profitability. Trade Credit Insurance is a protection against your customers’ failure to pay these trade debts should they become insolvent (C.C.A.A., Chapter 7, Chapter 11) or fail to pay within the agreed upon time frame (refusal to accept goods, past-due accounts).
Insurers have different ways of insuring receivables. Policy holders can often choose smaller or larger risk sharing options. Policies that are currently offered can cover domestic sales as well as world-wide sales, depending on the wishes of the customer. Customers can often choose between insuring a portion or all their sales. All these factors influence the premium rate widely. Insurers offer a free quote without any obligation, as your named broker we evaluate these proposals for you.
Trade credit insurance is priced on the basis of standard actuarial techniques. It is sold mostly on a whole turnover basis (whole turnover cover policy) and premium rates are generally given as a percentage of the company’s turnover (including financially sound and weak customers). Obviously, the future turnover is not known at inception and so the premium is not known either. Therefore, a minimum premium amount is usually an integral part of the contract.
Some of the criteria looked at to determine pricing are:
Trade credit insurance policies are tailored to fit your size, sector and business ambitions resulting in a custom made policy at a corresponding affordable premium. Most trade credit insurers also offer standard policies, which may be more suitable depending on the trade to be insured. Many trade credit insurers have also developed particular policies aimed at small and medium sized enterprises (SME). These policies have low administration, and are competitively priced. Companies that are concerned about only a few of their buyers can opt for a trade credit insurance policy that covers only those buyers.
Aside from business factors arising from the marketplace, companies are also impacted by political decisions that are beyond a company’s control and can affect individual businesses, industries and the overall economy. These can include taxes, spending, regulation, currency valuation, trade tariffs, labor laws such as minimum wage laws, and environmental regulations. Companies are subjected to multiple risks such as the inability to convert local currency and repatriate it, contract interruption, non-payment, confiscation, sovereign debt default or geopolitical unrest. Trade Credit Insurance can remove or mitigate certain political risks. This allows management and investors to concentrate on the business fundamentals knowing losses from political risks are avoided or limited.
Better financing: Trade Credit Insurance collaterizes your accounts receivable which in turn improves your position with lenders, allowing them to improve margining and/or bank financing conditions.
Sales growth: Trade Credit Insurance helps you safely grow your sales & expand your business in domestic or international markets to new & existing customers. It gives you a competitive advantage by allowing you to offer safe, more lenient open payment terms or larger order sizes. It can also allow you to reduce bad-debt reserves in order to increase your cash flow.
Risk transfer: Trade Credit Insurance is a protection against your customers’ failure to pay these trade debts should they become insolvent (C.C.A.A., Chapter 7, Chapter 11) or fail to pay within the agreed upon time frame (refusal to accept goods, past-due accounts). It is the best protection for your business from the risk of customer default and catastrophic loss by making sure you get paid.
Risk management: Trade Credit Insurance gives you the best information to make the right decisions for your business and works closely with your internal credit manager to optimize your business’ credit management.
No. There is no cost to the insured in making use of a broker’s expertise. A part of our service to you is to ensure you have access to the best rates & that your Trade Credit Insurance policy is tailored to your needs. Your Trade Credit Insurance policy is likely to be less expensive.
Purchase Order Funding is a financing option for businesses that need to cover the costs of producing or acquiring goods for resale. It is often used in conjunction with an accounts receivable factoring arrangement. For many growing businesses, PO Funding is a more desirable financing option than traditional bank loans.
There is no difference! The terms Purchase Order Funding, PO Funding, Purchase Order Financing, and PO Financing can be used interchangeably. We use the terms interchangeably throughout our website to reflect this.
Purchase Order Funding works in a few easy steps. Upon receipt of a qualified purchase order from your customer, IGA will match a provider that will cover the cost of producing or acquiring those goods for resale. The goods are then shipped to your customer per their purchase order. An invoice is issued to your customer and the provider is paid back by your Accounts Receivable Factor as the first advance against the resulting accounts receivable.
No, a Purchase Order Financing transaction relies on the credit of the end customer and their ability to pay for goods. Providers also consider the ability of our client to produce the goods and deliver as stated on the customer purchase order.
Getting set up for PO Funding is easy. To start, basic financial and corporate information is all that’s needed. In order for a provider to consider financing an order, our client must have a purchase order from their customer, the pro-forma invoice from their vendor, and an understanding of payment terms and lead teams. The more details a business presents when submitting a transaction, the easier it is for us to execute it smoothly.
PO Financing Rates can vary depending on the length and type of transaction. For example, a complex Work In Process has a higher cost of funding associated with it than PO Financing to purchase finished goods for resale.
The costs of production or acquisition of goods up to 100% as long as the goods are pre-sold to credit-worthy end customers.
Yes. You can buy items from multiple suppliers. Depending on where the goods are coming from and what the lead times are, it may be required that your customer allow for partial shipments. we will evaluate the proposed transaction and provide whatever guidance necessary to help get the deal done for you.
Yes. We always want to inspect goods prior to paying for them. When available, a third-party inspection company handles the inspection process. It’s important to note that not all third-party inspection companies are qualified in all areas. IGA will help you select an inspection company that is most suited for your business—within reasonable timeframes and budgets.
In a PO Financing transaction the lender is purchasing products that are presold to an end customer. When financing inventory a lender will help purchase new inventory or lend against existing inventory that will be sold at a later date(hopefully).
Of course it is. As long as there is a purchase order from a credit worthy customer and a reliable vendor. Some lenders may choose not to fund startups.IGA works with both new and existing businesses and will even consider funding the first transactions a business comes across.
Yes, international purchase order funding is done in the same way we finance domestic orders. Depending on whom you are selling to we may request a letter of credit, shorter terms, or other accommodations to get comfortable with the transaction.
In order to evaluate a a transaction the PO Financing company will require all of the buy/sell information. Anything you have that helps show how products are being bought and sold will be important to the lender. This includes Purchase Orders from your customer, pro-forma invoices from your vendor, production schedules, etc.
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.
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.
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.
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.
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.
Absolutely not. There are very material differences that need to be understood and may be negotiated.
Supply chain finance, also known as supplier finance or reverse factoring, improves cash flow by allowing businesses to optimize their payment terms to their suppliers while providing the option for their large and SME suppliers to get paid early. This results in a win-win situation for the buyer and supplier. The buyer optimizes working capital and the supplier generates additional operating cash flow, thus minimizing risk across the supply chain.
Supply chain finance offers suppliers a way to accelerate their own cash flow. Suppliers participating in a supply chain finance program have the option to get paid early – typically as soon as an invoice has been approved by a buyer. The supplier can accelerate payment on some, all or none of their receivables, depending on their financial position and funding requirements. For those receivables that are paid early, the supplier will pay a small finance charge or discount. Since the buyer is the obligated party, financing is offered to the supplier at rates that are typically more favorable because they are based on the buyer’s credit history and rating. For many suppliers, this access to a lower cost of funding is exceptionally important.
All of this occurs without negatively impacting either companies’ balance sheets. Accounting treatment for supply chain finance, when done properly, does not count as additional debt for a buyer or supplier.
No change is required. The existing process a supplier performs to invoice the buyer remains in place.
The funds will be electronically transferred to the supplier’s bank account in as quickly as 24 hours after approval.
On average, it takes 90 days for companies to implement a program. However, this varies depending on the alignment and resources of the buyer implementing the program.