World Trade Consult, LLC - Trade Credit Insurance
Wednesday, March 10, 2010
 
What is Trade Credit Insurance?

Trade Credit Insurance is a casualty insurance that protects your company's Domestic and International Commercial Accounts Receivable from unexpected and catastrophic losses. These losses result from two sets of Risk Perils - Commercial Risk Events (that can cause non-payment of your A/R) and Foreign Political Risk Events (that can cause non-payment of your A/R).

Commercial Risk of Loss Events

  •  Domestic Buyers

•  Buyer Insolvency
•  Bankruptcy
•  Protracted Default (Slow Payment).

  •  International Buyers

•  Buyer Insolvency
•  Bankruptcy
•  Protracted Default (Slow Payment)
•  Pre-Shipment Cancellation
•  Non-Acceptance (Refusal to Take Goods Ordered).

Foreign Political Risk of Loss Events (International  Buyers Only)

•  Transfer Risk - Currency Inconvertibility
•  Foreign Political Violence - War, Riot, Insurrection,     Civil Strife, Rebellion.
•  Foreign Government Revocations and Interference
•  Suspension of Import Licenses
•  Confiscation of your Buyers' Assets
•  Suspension of Local Banking (Foreign Bank     Holidays).

Trade Credit Insurance: Another Perspective

Trade Credit Insurance is

 

  •  Aid to Grow Domestic and International Sales and Profits: Your      company can extend larger, more competitive credit limits and      payment terms to customers without taking additional undue      risk of loss.

  •  Asset Security: Trade Credit Insurance protects the value of      one of your largest unsecured assets: Commercial Accounts      Receivable.

  •  Cash Flow Protection: Trade Credit Insurance helps to stabilize       your company's cash flow when unforeseen credit losses arise.

  •  International Political Risk Protection: Trade Credit Insurance      shields your company against unexpected 'foreign political'      actions and decisions taken in hundreds of countries worldwide.

Risks of Loss of Your Company's Accounts Receivable

A/R Losses are driven primarily by Buyer Bankruptcies and Insolvencies, which are inevitable and on the rise both in the United States and around the world. Can your company afford to be caught as a general unsecured creditor in any U.S. bankruptcy?

Large size and strong brand names are no protection against insolvency, in the United States or anywhere worldwide. The following former U.S. corporate giants all sought bankruptcy protection, which caused significant losses to their suppliers: Kmart, Enron, WorldCom, Chiquita Brands, Polaroid, Adelphia, Conseco, Rand McNally, US Air, Bethlehem Steel, Armstrong, UAL and Burlington to name a few.

What Causes Bankruptcies and Protracted Default (Slow Payment) Behavior?

The following are just some of the reasons why your Buyers can experience cash flow deficiencies that cause slow payment behavior and possible subsequent bankruptcies. These situations are unpredictable and often silent until it is too late to correct the problems. Even with the best internal audit and external credit management practices in place, the following occur and can jeopardize your company's ability to collect your Commercial Accounts Receivable on a timely basis

•  Management Deficiencies/Incompetencies
   (Bad Business  Decisions)
•  Internal Fraud
•  Product Liability Lawsuits
•  Competition/Loss of Market
•  Regulatory Changes - Domestic and International
•  Foreign Political Upheaval
•  Legal Maneuvering (mere 'threat' of insolvency     and bankruptcy filings)

Trade Credit Insurance can protect your company's Commercial Accounts Receivable from losses caused by the above and other threats to your buyers' cash flows.