Trade Receivables Insurance, Accounts Receivable Finance

With dramatic changes in the banking sector, it has become increasing difficult for businesses’ to secure traditional lines of credit. Maintaining a healthy cash flow is one of the most vital aspects of any business. Small and medium sized enterprises (SME’s), a large part of the US market for banks, are particularly vulnerable to late payment and bad debt. These companies often finance customer’s late payments to the detriment of their own cash flow and business development.

Through the use of non recourse accounts receivable finance the risk is removed should one of your buyers slow pay, fail to pay become insolvent or bankrupt. Using this type of method businesses’ can safely convert their receivables into immediate funds instead of waiting for payment when receivables are due. Growing companies can finance expansion, take advantage of supplier discounts, leverage their banking credit facilities, reduce or eliminate balance sheet liability, and even build or strengthen a business rating with reporting agencies such as D&B and Experian.

Moreover, businesses’ that are self financed with little to no cash flow issues can utilize trade credit receivables insurance to protect its invoices from catastrophic losses due to insolvencies and bankruptcies while safely shipping goods or providing more services to customers. In fact, with exception to disputes and fraud, if your business carries a trade credit insurance policy, should you experience slow paying invoices that become a collection issue you may save the cost of recovery fees by more than a third of what law firms can charge to collect an outstanding debt. More importantly, you could be reimbursed on losses which can reduce back office expenses while maintaining your profit margins.

One of the significant perks of having a trade credit insurance policy is being able to leverage your bank’s lending relationship. Outside the United States having a trade receivables insurance policy has become practically necessary for businesses’ that want to establish credit facilities, (AKA) revolving line of credit or working capital.

United States banking institutions continue to hold tightly to their balance sheets while cherry picking the best of the best companies in which to conduct lending relationships with. It appears that American banks have now come to realize the great importance of trade credit receivables insurance when considering a company’s request for a line of credit. The purpose is that the bank can be named as loss payee/beneficiary should a businesses’ net term invoices whether domestic or export end up as insolvent or bankrupt due to catastrophic loss. This gives the financial institution peace of mind knowing they will be paid.

Market Finance thoughts 2009

I happen to have a fascination with Mount Everest the highest mountain in the world as measured by the height above sea level of its summit, 8,848 metres (29,029 ft) and appreciate what goes into a task such as scaling this amazing place and surviving to talk about it.  My point being, if you want something strongly enough it can be achieved.

In light of this, I’ve used the following (10) steps listed below as an analogy to building a profitable business model for 2010 and beyond. Another way of perceiving this is through our own personal experiences whether physical, mental or emotional challenges we must learn to endure and overcome obstacles set before us.

CLIMBING MOUNT EVEREST:

Step (1). Start training today. Take mountaineering courses that teach you about technique, equipment, routes and survival. Then begin a minimum of two to three years of regular practice climbs in high alpine terrain, including steep faces, rough rocks, night climbs, ice falls and snow climbs.

Step (2). Get a complete physical checkup. You’ll need healthy veins and arteries to pump lots of blood to your brain and muscles, as well as to warm your body. Keep your blood pressure and cholesterol down.

Step (3). Raise the cash. You’ll need plenty; even a low-budget trip will cost $25,000, with guided package trips soaring to as much as $60,000. Realize that $10,000 goes to permits alone; then add travel, food, equipment, oxygen, insurance and Sherpa fees. Consider approaching corporations for sponsorship deals to cover your expenses.

Step (4). Plan a May expedition. The weather is most cooperative then (when it isn’t a whiteout, blowing 100-mph winds, and 50 degrees below zero). Six months in advance, you’ll need to file for permits and send copies of passports and climbing letters of recommendation for your team to the Nepal Ministry and Administration, as well as to a trekking agency to help you with transporting your gear. You’ll also need to contract with Sherpas to aid you on your voyage. For more information, contact the Nepalese Embassies and Consulate Offices in Washington, D.C., or in Kathmandu, Nepal.

Step (5). Pack a first aid kit, medications, satellite phone, walkie-talkies, laptop computer, padlocks for bags, tents, sleeping bags, mountaineering clothing, climbing equipment and ropes, water, food, trash bags, sun-screen, vision protection, oxygen bottles and anything else you can fit on a yak or on your back, or that you can hire a Sherpa to carry for you. Make sure you’ve tested all your gear in cold, severe conditions before you pack it.

Step (6). Get yourself to Kathmandu, Nepal, where your expedition truly begins. You can fly a number of international carriers connecting through major airports; none of these flights will be direct or nonstop. Jet lag is guaranteed. Check in with the local authorities, pay your fees and organize your crew.

Step (7). Trek from Lukla to Base Camp at 17,600 feet. Scale the Khumbu Icefall up to 19,500 feet. Rest at Camp I in the Valley of Silence. Push on to Camp II at 21,300 feet. Scale the Lhotse Face and climb to Camp III at 23,500 feet. Rest and acclimatize for the trip to Camp IV, which at 26,300 feet is the only camp located in the ‘death zone.’

Step (8). Charge the summit when you have a weather window. Start early in the morning, before sunrise, with extra down mittens and plenty of oxygen.

Step (9). Sit atop the 29,029-foot summit and know that you are at the highest point on earth. And then mentally prepare for the descent, because getting down is just as dangerous.

Step (10). Pack out all of your empty oxygen bottles and trash to get back your $4,000 environmental deposit and leave the mountain with good karma.

Best wishes for a successful New Year!
Stratacus

The future of financial markets

As we fast approach January (2010) it’s been almost a year since I’ve written anything for the Stratacus business blog, but for good reason, I’m working my tail-off─  Actually, I’ve thought through everything our country has experienced from the avalanche of the 2008 stock market crash and war in Iraq to the presidential election and recent events in the news.

There has been enough time to reflect upon the data and I’m quite concerned about evolving domestic and global economic trends including; our own currency.  I’d rather not expound too deeply so with that in mind here is some insight:

The United States financial system must properly prepare itself to handle a second wave of over 4bn of debt coming due within the next three to five years that will cause negative impact on commercial real estate and non-investment grade debt.  Such an event would certainly overwhelm the existing credit market, which could cause a protracted strain upon the current economic system well into 2012, thus creating major turmoil for many overleveraged businesses and borrowers.

What’s more frightening is that it will affect companies and individuals with respectable DUNS and FICO scores.  These folks may have no alternative, but to file for bankruptcy protection due to cash flow issues and an inability to secure credit as the securitization market dries up like the Sahara desert.  Such an upheaval would likely cause the FED to continue its TARP funding and drag out the finalization of the stimulus plan with well over 1bn of leveraged finance debt expected to come due in the year 2014.

To make matters worse is the devaluation of US currency amongst the BRIC countries: Brazil, Russia, India and China. Not to mention that the green back is practically at parity with the Canadian dollar.  It’s gotten to the point where some countries have begun placing monetary controls over their own currency as exporters exploit the increase against the US dollar.  As stated in my last post, we need strategic intervention, but things must change for the betterment of our economy not to the detriment of future generations.

On a positive note, Japan’s GDP had an accelerated growth of 4.8% in the last quarter of 2009.  I was seriously considering learning another language. Perhaps investing in Rosetta Stone and eating more sushi would be a good idea . . .

“The best laid plans of mice and men”

Welcome to the first edition of the Stratacus blog!

Two years ago I forewarned clients to hoard away cash while doing everything possible to clean up their business line of credit before the onslaught obliterated banks and hedge funds– like the fall of the Roman Empire.

As an experienced middle-market banking professional and business advisor I could see an approaching tidal wave as though a lookout perched in a crow’s nest.  In fact, during my career, I worked in foreign currency consulting corporate clients daily about knee-jerk reactions to market conditions.

The tumultuous fiasco has resulted in vapor trails of businesses that have collapsed because they were not prepared for a brooding economic environment. Their minds had been ingrained with the misconception that banks were there to assist them even during tough times. . .

Since leaving the banking industry, I’ve taken the path of a financial soldier of fortune.  As a certified business advisor with advanced credit training and risk management my expertise and services are offered to companies and individuals alike.

To give you some insight into a business banker’s situation– it can take months of hounding prospects until they decide to transition their accounts.  Business owners are skeptical about leaving an existing banking relationship because they’re afraid of the unknown. In other words, what if I exit my relationship with bank (A) for Bank (B) and the new bank won’t match or exceed my line of credit? That’s a scary thought to someone who needs that operational line to exist.

Just a bit of information for those unfamiliar with the subject: when a company goes out of business such as chapter (11) not chapter (13) they don’t actually close their doors, but go through a recover period instead.  Once a company files for bankruptcy protection, the US Bankruptcy Court and its fiduciary trustee take control. From this point forward a company’s banking deposits are carefully monitored and assigned specific numbers to keep track of its activities.

What does this mean to a banking institution you may ask? Well, deposits . . . many of them. (DIP) debtor in possession accounts can be voluminous.  Example: XYZ Electronic store with a national footprint goes out of business (chapter 11) and a particular bank gets all its deposits. Of course most institutions won’t lend to a (DIP) until they receive special approval from the US Court. On the other hand, banks love having the money that flows through the accounts on a regular basis. These funds are usually the retailer paying its suppliers and vice versa.

I’ve had people ask me what happens from the banking perspective.  I don’t represent myself as an attorney, and you should always seek professional legal counsel for any questions you have related to these types of matters. *Needed to mention that*.

As a business banker it was difficult explaining to a loyal customer that we could not lend him money because his company balance sheet showed negative results the past three years. To make matters worse– he was personally (overleveraged) meaning, he had no cash on hand, used 90% of the equity from his home and was upside down in an expensive car lease.

The typical response, “I’ve been with you guys for years– I don’t understand how you can do this to me. You gave me money when I started the business”.

Folks, banks only want to lend money to businesses that show a positive cash flow, good credit and collateral. 10 out of 10 times they also want a (PG) personal guarantee and rarely lend money without one. That’s it in a nut shell!

There are instances where a new business owner gets an overdraft line of credit when they first open their doors. Depending upon the bank you may get approved for around two thousand to twenty thousand dollars.  Typically, this is based on your personal credit score, which must pass specific bank criteria. Anything above these amounts require a better than average credit score (750 – 800) with at least three years in business.  Alternatively, banks may suggest the (SBA) Small business Administration 7a express route, but there’s more to this than meets the eye.

Let’s call a spade to spade; when it comes to the mortgage crisis, people were given loans they simply could not support.  Think for a moment, if you make $40K per year before taxes can you actually afford a house valued at $200K? Perhaps— if you were placed into an exotic finance deal along with an (ARM) adjustable rate mortgage. But when the bow breaks the cradle will fall—and down will come America cradle and all.

The blame is basically 60/40. The banks and mortgage companies were well aware of what they did, and the customer knew they were not positioned to handle that type of request once the ARM broke. The customer was just thinking about the windfall profit on the sale of the home two or three years later.  They never expected to get sick, lose their jobs—or experience the fall of the American economy along with the largest banks global hedges funds, and the top three American auto makers.

Fortunately my clients were businesses so in essence, I wasn’t exposed to the financial shenanigans that engulfed our country.  My bad experiences were fraud related and typically dealt with scammers looking to pull a fast one. There are lots of stories I could tell and maybe one day I’ll share them.

After spending a number of years in the industry and becoming intimate with the system I went through some really upsetting things that didn’t rest well with me.  There came a point when I considered myself a rogue banker. Ridiculous as this may sound, my agnostic way of thinking didn’t play well with management, but nonetheless, I would preach to anyone who would heed my insight.

Getting the economy back on track boils down to respected leadership and people who can envision what is necessary to make the right decisions that will benefit the masses. 2009 must– bring sweeping changes and polices that will be carefully monitored and enforced by financial experts and authorities who can insure the best positive outcome while keeping their noses to the grindstone, ears to the walls and eyes wide open.

Remember this quote, “With malice toward none; with charity for all; with firmness in the right, as God gives us to see the right, let us strive on to finish the work we are in; to bind up the nation’s wounds…. “

–Abraham Lincoln.

I appreciate your visiting, and look forward to adding my thoughts.

Have happy New Year!

Best wishes,
Stratacus