Thursday, September 23, 2010

Challenges, opportunities ahead for carriers

Active truck capacity is tight at about 94%. Couple that with an increase in the regulatory environment and driver shortages expected over the next few years and you have set the stage for an interesting time in the trucking business.

Credit: Sean Kilcarr -

Wednesday, September 15, 2010

Possible Tax Breaks for Small Business

New article from the Boston Globe on the possible new legislation designed to help small business. Please leave comments on your thoughts. Thanks, Sean.


Tuesday, September 14, 2010

Credit Insurance

Insurance is something each of us will purchase at various points in our lives. Whether it be car insurance, health insurance, life insurance, homeowners insurance, or any other of the many types of insurance available it serves one main purpose: to mitigate the risk of loss. Credit insurance is no different. This type of insurance (aka: trade credit or receivables insurance) is designed to protect a business from an event where a customer who was offered net credit terms (i.e. Net 30 days) on an invoice cannot meet its obligation to pay.

Typically, this type of insurance will pay out an agreed upon percentage of the face value of the invoice in question, but as with all other kinds of coverage there are innumerable ways a policy may be structured and priced. Often the triggering event for a claim to be filed and honored is an insolvency, bankruptcy, or documented inability to pay on behalf of the customer.

Credit Limits/Decisions: When you apply for credit insurance you can submit only one customer (usually if they are a high volume exposure, read: multi-million), or, as is more often the case, your entire customer base, or perhaps a subset of your customers. Credit insurers would rather have multiple customers included as it minimizes their risks to some degree. Once you have submitted your list of customers to include in the policy along with the requested credit limit the agent will review the list, check their proprietary database of payment and financial information on your customers, and consult with their underwriters to determine how much credit they are willing to extend to each. You will then receive your quote with the credit decision list showing you what amounts of coverage per customer the insurer is willing to accept. You should expect the proposal and credit review process to take at least two weeks.

Pricing: This can vary, but is typically based upon a fraction of a percent of anticipated sales volumes. Premiums for the first year are typically due at the time of accepting the proposed policy and are then due on a monthly basis after that. Sometimes, you can find a company willing to accept less than a year's premium upfront, but expect to pay at least $10,000 for a policy. So, if your company has annual revenues of under $1 million credit insurance might be too expensive and you will want to conduct (as you should in any situation) a thorough review of any customers requesting net credit terms.

Providers: There are three main credit insurance companies in the world and they account for over 80% of all policies sold. They are Euler Hermes, Atradius, and Coface. As with any insurance you should shop around and find out which policy will provide you with the best combination of price, coverage, and service. Each of the above companies has its own database of credit information and one may approve one of your customer while another may not. Do not be convinced that the lowest priced policy will necessarily be the best for you as how responsive and attentive your agent is can be the difference between a miserable claims experience and a very smooth and helpful one. Also, it should be noted that as with every single insurance company on the planet (regardless of what they are insuring) if you have an imminent loss or a "pre-existing condition" there is not a company out there that can help. This is a risk management tool to help guide credit decisions and support you in the event of an unexpected loss.

There are also national, quasi-govermental entities that can provide trade coverage and guarantees, but these are usually focused exclusively on exports. In the United States there is the Export-Import Bank, and in Canada there is Export Development Canada.

How credit insurance relates to factoring: If your company factors or is considering factoring its receivables and you sell overseas odds are you will need to buy a credit insurance policy since the factoring company will require insurance. Sometimes they will take out insurance against your customers on their behalf, but note that regardless of how the insurance is structured the factoring company will have to be named as beneficiary/loss payee to ensure that they will be reimbursed for any factored funds that are not repaid by a customer/debtor. Factoring companies love to see credit insurance policies as it further mitigates everyone's risk. Just something to think about if you are looking for a factoring company.

This is a basic introduction to credit insurance. For more information, please contact my recommended sources and kindly let them know that Sean sends his regards.

Christina Montes de Oca
Euler Hermes ACI

Art Warner
ARI Global Insurance

Click here for a free quote/consultation on AR funding and credit insurance.
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