Protection Against Catastrophic Loss
Enterprise-Consumer Non-Durable Manufacturer
Background : Leader in their industry, experiencing strong growth with a solid balance sheet. Large credit exposures creating a concentration of risk in a few large 'big box' national retailers.
Financial Facts : Annual Sales-$100 million. A/R Average-$14 million. Net margin-3%. Average A/R Turns-13. Dedicated full time credit administrator.
Objective : The company's personnel and systems can effectively manage the credit/collection functions but they do not monitor credit sources or clients on a daily basis. They need a program that eliminates the potential unexpected risk of loss, which would be catastrophic, while selling more to their largest customers.
Solution : World Trade Consult, LLC structured a trade credit insurance protection program that covered the client's top 12 customers (whose sales equaled 43% of total sales). A reasonable First Loss Deductible and Co-Pay kept the premium affordable.
Outcome : Our client can now confidently sell larger amounts to these big box retailers, earning incremental profits that more than offset the cost of the program, all without taking additional unnecessary risk.
Large Concentrated Exposure to One Buyer = Potential Loss = $1,000,000 Net Margin = 3% Additional Sales Necessary To Offset Potential Loss = $33,000,000
An effective, affordable Trade Credit Insurance protection program can avoid the need to boost sales by $33 million in order to overcome the loss of one buyer's large A/R resulting from an unexpected bankruptcy.