Products Ph 1300 665 240

Trade Credit Insurance

Trade Credit Insurance is the protection of receivables against loss due to the insolvency or default by trade debtors in Australia and/or overseas.

All businesses supplying goods and services on credit terms face the risks associated with bad debts. No matter how successful, every business must consider what would happen if a major customer or a series of customers failed without paying their debts.

Trade Credit Insurance - How Does it Work?

Trade Credit Insurance smooths the peaks and troughs over the years and takes away the uncertainty and financial hardship created in the?bad years?. Whether it is the extreme case of a large ?once in 10 Year? loss or an accumulation of smaller to medium sized losses, Trade Credit Insurance can ultimately ensure your business survival.

The Key Benefits

Protect your business from bad debts

Consider the impacts on your business if you incurred a significant bad debt or accumulation of bad debts? Trade Credit Insurance protects you from these problems.

If your gross profit margin is for example 10% are you prepared to accept a profit margin of say 9.7% and ensure you get paid no matter what?

Protect profit/shareholder equity

If the net profit margin in your business is, for example, 5% and you incurred a bad debt of $150,000 then you would need to generate additional sales of $3,000,000 just to recover the loss.

Trade with confidence and ensure peace of mind

The comfort of knowing that someone else is taking the credit risk out of the equation allows you to operate with more confidence and certainty.

Improve your credit management procedures

The very fact that you have a Trade Credit Insurance program in place requires a certain amount of compliance and credit management discipline; essential ingredients for any business. Trade Credit Insurance brings additional focus to the credit management of your business.

Access independent credit risk assessment

Imagine having access to specialist analytical support to review the credit risk of your customer base. Trade Credit Insurance provides ongoing assessment and monitoring of your customer base.

Increase your sales to existing and new customers/markets

Trade Credit Insurance allows you to focus on selling more products and services to customers by providing credit limits which you as a business may not otherwise be prepared to give. The same principle applies to selling into overseas markets through the experienced knowledge and support provided by the insurers.

Provide additional security to your own suppliers and financiers

The cash-flow security provided by Trade Credit Insurance can give extra confidence to both your suppliers and financiers that your payments will not be affected by an unforeseen bad debt placing strain on your cash flow

What types of cover are available?

Cover can be arranged to suit a wide range of circumstances including:

Whole Turnover - covering your total receivables ledger, The most widely used form of protection
Major Debtors - covering your major accounts, over an agreed dollar value, Appropriate where you have a high concentration of risk at the top end of your ledger
Single Risks - covering a single large or strategic exposure, There may be instances where it is necessary to insure a specific contract or customer

Figure 1. shows the composition of a typical debtors ledger where the peak of the triangle represents the higher value accounts (lower in number) and the base represents the lower value of accounts (higher in number).

Receivables Finance

Factoring and Invoice Discounting facilities enable businesses to secure upfront cash-flow against invoices:

Factoring (recourse and non recourse): enables businesses to secure cash flow against invoices with the financier managing the collection process and administration of the debtors ledger. Generally, the involvement of the financier is disclosed to the customer
Invoice Discounting (recourse and non recourse): enables businesses to access the working capital tied up in their invoices whilst retaining responsibility for the collection process and management of the debtors ledger. There is no disclosure of the facility to the customer

IMC Newbury can offer advice on a range of solutions through our network of preferred partners.

Structured Trade/Finance

Structured Trade/Finance involves local and/or cross-border payments relating to the flow of commodities in high value supply chains often supported by the security of Trade Credit Insurance.

It is used widely for the benefit of producers, processors, traders and industrial end-users to meet a diverse range of funding requirements.

These structures can provide short term working capital or longer term funding depending on the circumstances and are tailored individually for each situation.

Political Risk

Exposure to losses before, during or after the provision of goods and/or services from ?political? causes of loss in export markets, with both private and public sector customers, including:

· Confiscation, Expropriation and Nationalisation

· Currency Inconvertibility

· Contract Frustration

· Political Violence

· Wrongful Calling of Guarantees

Surety

A Surety Bond is a contract in which the insurer (the Surety) issues a guarantee to the beneficiary that a third party (the Principal) will meet its contractual, legal or regulatory obligations.

There are various types of Bonds available, including;

· Performance Bonds

· Bid Bonds

· Advance Payment Bonds

· Maintenance Bonds

Deductible Funding Solutions

Aside from the more formal captive vehicles there are less formal structures available which can be used to manage the funding of deductibles (typically aggregate first losses) and which can assist in reducing premium costs and potentially provide substantial returns to your business.

Consulting Services

We engage in a wide range of consulting services complementary to the products and solutions we provide and where we believe these enhance our offering to our clients and add value to the relationship, including;

Pre- and post-insolvency advice
Representation at Creditors Meetings
Assistance with Terms and Conditions of Sale and Retention of Title
Review and/or drafting of Credit Manuals
Access to collection services
Existing facility reviews
Claims management

Letter of Credit Confirmations

The Trade Credit Insurance market can be used to support the banks by providing insurance cover to letter of credit facilities.

Supplier Default

In certain situations it is necessary to pre-pay for capital equipment and/or major purchases/inputs. Supplier Default is effectively Trade Credit Insurance in reverse, where the risk becomes the supplier failing to deliver the goods by reason of their insolvency.

Captives and Captive Management

Trade Credit Insurance can be applied to a captive insurance environment, whether via a formally incorporated vehicle, a cell captive or rent-a-captive structure. We have access to the skills to structure and negotiate policies in this environment.

Credit Enhancement

Credit enhancement is the process of reducing credit risk by providing the lender with insurance (and/or collateral or other agreements) so that it will be compensated in the event that a borrower defaults on its payment obligations. This is a highly specialised market and solutions tend to be most successful when applied to larger exposures.

We have offices in Sydney and Melbourne