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.
