Receivables Insurance

what is trade and other receivables

Why you need receivables insurance

You need to offer competitive payment terms to your customers. But what happens if they go out of business, file bankruptcy, run short on cash, or don’t pay your invoices for some other reason?

Accounts receivable insurance protects against defaults resulting from customer insolvencies, business closures, ownership changes, cash flow problems, balance sheet issues, bad faith, fluctuating demand, natural disasters, general economic conditions, and other nonpayment risks.

Receivables insurance, also known as trade credit insurance, does more than mitigate nonpayment risks. It’s a sales tool that can help you win more orders and it’s a financing tool that makes your company’s receivables more attractive to lenders.

One policy covers multiple customers

All of your company’s insurable sales can be covered under one accounts receivable insurance policy. A specific credit limit will be approved for each of your customers or, if you qualify for a discretionary limit, your policy will insure the credit decisions you make yourself based on your own experience.

Alternatively you can apply for a trade credit insurance policy covering only your largest customers. Or you can be even more selective, as long as the sales you want to insure represent a reasonable spread of risk. Trade credit insurance policies covering just a single customer are less common, but may be feasible in some cases for a very creditworthy debtor.

If you want to cover your company’s international receivables, Meridian offers export credit insurance as well…or you can insure both domestic and export sales under a global trade credit insurance policy.

How much does credit insurance cost?

Premium rates for accounts receivable insurance are based on the terms you extend, the spread of your buyer and industry risks, and your company’s previous credit and collections experience.

The cost of trade credit insurance is low, typically a small fraction of one percent of your covered sales volume.

Whether or not you pass this incremental expense to your customers, the price of trade credit insurance is insignificant compared to the additional business you can obtain by extending competitive credit terms while protecting your sales against nonpayment losses.

Why you should work with Meridian

Over the past 20 years Meridian Finance Group has helped hundreds of companies increase their sales using

accounts receivable insurance.

All policies brokered by Meridian are backed by top-rated credit insurance companies. We offer policies from every underwriter, enabling us to quote the most competitive terms and premium rates in the market.

More significant than Meridian’s ability to place coverage is the comprehensive support we provide to our customers. Credit insurance companies work differently from other kinds of underwriters, so Meridian assists with policy compliance at the same time as we help our clients get the most out of their insurance as a sales and financing tool.

We understand your business. Our staff has experience not only with trade credit insurance, but also A/R management, collections, finance, manufacturing, and distribution.

Receivables insurance as a sales tool

You can increase your company’s sales by using trade credit insurance to extend competitive payment terms. Credit makes it more economical for your customers to order larger quantities, enabling you to negotiate better pricing from your suppliers, make longer manufacturing runs, and reduce your inventory carrying costs.

A trade credit insurance policy helps you negotiate stronger representation by offering longer payment terms to your agents and distributors. By providing an incentive to keep more of your products in the supply chain, you’ll increase your market share and local brand recognition.

The opportunity to penetrate emerging markets and industries has never been greater. You can start doing business in sectors you might otherwise perceive as too risky for payment terms by using trade credit insurance.

Receivables insurance as a financing tool

A trade credit insurance policy makes your receivables more attractive to banks and other lenders, especially if your A/R portfolio includes concentrations of risk, cross-aged receivables, or sales into industries outside your bank’s comfort zone. You can enhance your borrowing capacity by including more of your receivables in your collateral base.

You’ll strengthen your balance sheet and keep your company’s financial position secure with a trade credit insurance policy, despite exposure to unforeseen events, concentrations of credit risks, and changing market conditions. Covering your receivables with A/R insurance may also enable you to reduce your bad debt reserves.

Policies from credit insurance companies can help facilitate the “true sale” of your receivables per FASB 140, on a case-by-case basis or in the context of a formal asset securitization.


Category: Forex

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