Most manufacturers wouldn’t even consider doing business without insuring their buildings, machinery and vehicles. But the debtors’ ledger is quite often the largest asset within their balance sheet and can be the most volatile.
Have you ever stopped and wondered what would be the effect on your business if your largest debtor could not pay you? The domino effect of non-payment from one of your largest clients can have catastrophic effects on your cash flow, your ability to pay your creditors and your ability to meet customer demand.
Put simply, Trade Credit Insurance will cover your debtors’ ledger, enabling you to make claims against your policy for customer insolvencies and protracted payment defaults.
So what are the key benefits?
Preserve your profit
On average about 40% of a company’s assets are from the debtors’ ledger, a significant part of your business that should be protected. A bad debt provision is not the answer – it won’t put cash back in your account but a claim paid by your insurer will.
Protect your liquidity and cash flow
Apart from the long-term loss of a customer and future revenue streams, there is the immediate effect on forecasted cash flow. A significant bad debt could even lead to your own business failing or unexpected additional costs. The proceeds of a credit insurance claim will inject liquid funds back into your business.
Confidence to expand
Manufacturers can grow their business in confidence knowing that the cost of potential customer failures is already covered. Trading with a customer you previous felt was too risky now becomes a possibility. You can also be more aggressive in your sales and marketing by extending credit limits and offering longer credit terms with your customers. This will help you compete with other manufacturers that are willing to take on extra risk. Whether you trade with customers domestically or internationally, your customers’ liquidity can be affected by many factors. Political risk in volatile export markets can’t be ignored.
Strengthen your credit management
No matter what credit control procedures you have in place, you can further enhance the quality of decisions made on credit limits by working closely with your insurer. Take comfort in the knowledge that significant market analysis supports every credit limit decision made by your insurer. You can spend less time worrying about venturing into new markets and be ‘in the know’ about the customers you are dealing with. An associated benefit of trade credit insurance is support in collecting overdue debts and rebates on collection costs, together with a review of your current credit procedures and policies.
Manufacturers can protect their debtors’ ledger and gain access to more efficient financing. Banks recognise trade credit insurance as collateral security when providing financing for local or export sales. When you have run out of ‘bricks and mortar’ to securitise bank funding, using a liquid asset such as an insured accounts receivable ledger, and providing this security to your bank, can lead to additional bank funding. Your shareholders can also appreciate that their assets are being well protected and that financial corporate obligations are being met.
Trade Credit Insurance gives manufacturers security knowing their largest asset is protected and gives confidence to expand into new markets, while cash flow and liquidity is secure.
For further information or a no obligation review of your Trade Credit Insurance needs, please contact Rob Jackson.