That much you should know. But what are some things you might not know about Trade Credit Insurance that you should be asking? The questions that follow were culled from the frequently asked questions submitted by clients. They represent the types of things they were asking, the answers to which moved them forward from merely curious to happy client.
No. 1: I have never heard of this product, is it new?
No. Trade Credit Insurance has been protecting the assets of American companies for well over 100 years. All the insurance carriers that issue these policies are well established companies that carry at least an "A" rating by A.M. Best.
No. 2: Is this factoring?
No. Unlike factors, insurance companies are not lenders. They only protect against non-payment of your buyers. As a result the cost is a fraction of what factors charge.
No. 3: How can Trade Credit Insurance help my business?
Trade Credit insurance policies assist companies in several ways. It protects against the infrequent, but highly severe, catastrophic credit loss (i.e. THP Properties, Enron). It can also enhance a company's financing relationship with their lender. Insured receivables, especially international receivables, make much stronger collateral than non-insured receivables. By making these receivables eligible, it may increase your borrowing base. Most importantly it enables a business to expand both its sales as well as profits. Transferring the risk of non-payment allows companies to sell more to both existing customers as well as to new clients. In many cases the additional profits generated by the policy more than pays the premium.
No. 4. Do I have to cover all of my outstanding accounts receivables?
Not necessarily. Depending on what you would like to accomplish you can insure only your domestic sales, only your export/foreign sales, or both. You can also carve out an exclusive segment of your receivable portfolio, for example, the ten largest customers or all companies that owe more than $25,000.
No. 5: Can I extend as much credit as I want to these insured buyers?
While sales expansion is an important benefit of this policy, so is loss prevention. Buyers to be insured are assigned specific credit limits depending on your requirements as well as the financial strength of the Client. In addition these accounts are continually monitored for any change in their financial condition.
No. 6: Will my customers be notified?
No. Trade Credit insurance is transparent to your buyers. You continue to do the invoicing and collections. Unlike Factoring, there is no notification to your clients unless you choose to let them know. The receivables are not assigned nor are any liens or UCC filings necessary.
No. 7: Can I exclude certain customers, such as Lowe’s, Walmart or Home Depot?
Yes. We can request a specific endorsement to exclude sales from a policy.
No. 8: Can you explain Credit Insurance to my banker?
Yes. We talk to Loan Officers and Banks all of the time, in addition to doing webinars and sales presentations to help them understand the value of a Trade Credit Insurance Policy. We will explain the policies and their respective coverage benefits.
No. 9: Will this increase my available credit limits?
Trade Credit insurance provides an assurance of payment that asset based lenders can advance against. Typically most national banks will provide a higher advance rate against both foreign and domestic receivables that are insured.
No. 10: How long does the process take?
The application paperwork takes about 45 minutes to complete. Then we provide a non-binding indication (quotation) from several insurance carriers within a 2-3 week time frame. We will provide an executive two-page summary that will outline premium, deductible, co-insurance, and policy features as well as attach all the formal indications.
No. 11: Does it cost more to use a broker?
No. Trade Credit insurance policies are typically Inland Marine controlled contracts. This means that whether you go direct and try to figure this out on your own or go through a qualified broker, the rates are the same. The value a broker provides is with the evaluation, quotation and implementation of the program. We structure the contract in your best interests - not the carrier's. Also, we assist in mandatory reporting requirements and a pre-claims review prior to claim submission.
The above represents the top 11 questions we’ve gotten about credit insurance. Can you think of any more? Contact us TODAY and fire away! We want to help you protect your company and turn you from merely curious to happy client.