Is it Time to Consider Trade Credit
As we move on from 2020 one piece of insurance is growing exponentially in the interest of our clients. Trade Credit Insurance or Accounts Receivable insurance is a protection on your receivables, domestic or foreign against non-payment, slow payment, political risk or a formal bankruptcy. At its core it is straight forward, simple, and yet one most companies don’t consider! Account Receivables for most companies are one of their top 3 assets. Typically, representing more than 40% of a company’s assets and an area with the economic uncertainty, most susceptible for a loss.
Insolvencies continue to rise, Days Sales Outstanding continue to increase and companies are doing more with less. So let’s look at 5 tangible ways a trade credit policy has helped SMEs just like yours.
- Credit Management – today all pillars of business are being disrupted and automated with big data and analytics. Most companies today still an outdated model for credit gathering references, a mercantile report or a “knock on wood” haven’t been burned yet. So why not a better way? Trade credit carriers are using analytics from payment history, mercantile reports, financials public/private and banking information to package a profile to widen your credit lens capabilities.
- Sales Growth – no one ever wants to suffer an expected or unexpected bad debt loss, but is having no losses a healthy mix of risk appetite? Trade credit allows for you to extend greater terms, larger exposures or be informed about new risks to grow. In a $5m company with margins of 15-20% and terms of n30 you’d only need 2 NEW customers spending $5k a month to recoup your investment.
- Bad Debt Reserves – CASH is KING, yet a practice among many is stashing cash, non-tax deductible on a balance sheet to plan for the unexpected. Trade credit allows for you to recognize a one-time win, while establishing a sophisticated credit management process by releasing your bad debt reserves. You don’t put money in a savings account expecting to play bumper cars one day!
- Access to Capital – as Covid19 continues to lag, many companies are relying on their cash flow and sometimes even PPP loans to sustain. A trade credit policy helps to collaterize your receivables so your lending institution can recognize a secured asset.
- Sleep Insurance – in this day and age as a business owner, couldn’t we all use a little certainty, knowing we will get paid for the work you’ve done?
Trade Credit isn’t just for the big corporations. We are excited to launch the Trade Credit Division at Robertson Ryan & Associates. We are here to help you better understand trade credit, partner with the major carriers and develop a program that matches your needs. Contact us, Follow our LinkedIn or visit our website to gain more insights.
Authored by Gary Daggett – Trade Credit at Robertson Ryan & Associates – 612.860.5829 – www.robertsonryan.com/tradecredit