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Opportunities

OPPORTUNITIES IN YOUR EXISTING BOOK

The biggest potential for success is within your existing book.  The majority of your clients could benefit from business credit insurance and are vulnerable to a competitor offering this product.

Why?

  • You have credibility with your client.
    You are already a respected resource. You can leverage  your existing relationships  and strengthen your  current  ties  to  your  clients by  bringing  them  this  value-added  service. Business credit insurance enables you to act as a risk management consultant and business advisor by offering protection for a sizable asset – protection that also enables your clients to expand sales, enhance borrowing terms and safely enter new markets.
  • Most will be willing to listen to you about a new product – credit insurance.
    You can demonstrate your commitment to enhancing your clients’ risk management process by showing them how this product covers a gap in their insurance coverage. In addition, you can illustrate to senior executives how business credit insurance helps them achieve their business goals, including expanding sales overseas, borrowing more working capital, reducing bad debt reserves or eliminating the risk of heavy accounts receivable concentrations.
  • Awareness is easy and is the first step to protecting your book.
    Stay in full control of your relationship by suggesting your clients consider this coverage before a competitor brings it to the table. Business credit insurance can help differentiate your firm with your clients’ senior management, further solidifying your existing relationships.

While most B2B clients are eligible to benefit from having credit insurance, there are several target industries that would be best suited to use credit insurance. Each industry will have different needs and will reap different benefits from credit insurance.

  • Building Materials
  • Automotive
  • Furniture & Audio Video
  • Other Durables
  • General Merchandise
  • Food
  • Gasoline
  • Apparel
  • Pharmaceuticals
  • Fuel & Other Retail
  • Wholesale Durables
  • Wholesale Nondurables

 

TYPES OF COMPANIES

Following are types of companies to look for in your existing book which are potential users of credit insurance. These are grouped as Export, Growth, Financially or Balance Sheet Driven and Low Gross Profit.

 

Export

CHARACTERISTIC
– BENEFITS

Large export receivables (may not be financed by the bank)
– Extensive database on over 1 million companies with risks running in over 100 countries

Company has a foreign parent or related company that utilizes credit insurance
– Avoid risk of dealing with unfamiliar companies in unfamiliar markets

Currently trading on Letter of Credit terms
– Provides coverage on export receivables

Can be unfamiliar with customers and regulations in other countries
– U.S. and Canadian buyers treated as domestic risk
– They are aware of the potential of credit insurance
– Ability to offer more favorable trade terms
– Secure export margining with your bank
– Reduce security requirements at bank by assigning you

 

Growth

CHARACTERISTIC
– BENEFITS

Sales are concentrated in one or two industries
– Credit insurance protects against high concentration in an industry

Large and rapid growth of trade credit
– Coverage helps protect against additional high risk associated with fast growth and new customers

Company is entering new markets, with little information on customers
– Utilize the underwriter’s extensive database on companies worldwide

Very competitive markets, trade credit given freely
– Credit insurance protects against the risk of dealing with the unknown

Sell into unstable or volatile markets
– Credit insurance can give the competitive edge to expand sales to new customers without credit risk

Higher margin companies, not necessarily competing on price
– Credit insurance can permit new incremental sales, the profit from which will reduce the true cost of credit insurance

 

Financially or Balance Sheet Driven

CHARACTERISTIC
– BENEFITS

A well-organized credit department and a sound financial risk policy
– Provides an added dimension to sound risk management

Limited resource (people and money) make it difficult to obtain full credit information
– We and the underwriter will work with the customer to obtain the necessary information

Relatively few accounts, with very large exposures – one loss could have a devastating effect
– Secure coverage on your key accounts and share the risk

Lending facilities at its bank are fully utilized
– With the assignment of the policy to your bank, financing options can be enhanced

Low margining with its bank and/or none on foreign receivables
– Credit insurance allows the bank to increase its margins

High reserves established
– With potential losses capped, reserves can be reduced.  Provides coverage on work in progress and sold goods

 

Low Gross Profit

CHARACTERISTIC
– BENEFITS

More of a commodity-type vs. differentiated product (example-personal computers)
– Credit insurance protects A/R from losses which would deteriorate Return on Investment

The industry to which the firm sells is cyclical
– Use the coverage to protect against large increases in A/R during good times and increased risk during bad times

Increasing bad-debt activity
– Credit insurance puts a cap on your losses

Company operates with low profit margins.
– Industries that are mature or on the decline

Low margin suggest substantial new sales are required to replace bad debt

Questions To Ask

The following is suggested lists of questions to ask clients to help you better understand their needs with respect to credit insurance.

      • “Are goods shipped to markets other than the U.S. or Canada?”
      • “What is the running average of accounts receivable?”
      • “What are annual sales?” (Ask for breakdown by market)
      • “Over the past three years, what has been the company’s average annual bad debt write-off?”
      • “What amount is reserved for bad debts per year?”
      • “Does the company have an asset based line with the bank?”
      • “What advance rate does the bank provide?”
      • “Are foreign receivables eligible for financing?
      • “Would you please explain the credit-granting procedures within the company?”
      • “Who approves new customer credit lines?”
      • “Who approves expansion of an existing line?”
      • “Who has the authority to grant an extension of payment terms beyond the due date?”
      • “Does the company ask for financial statements?”
      • “How often is the information updated?”
      • “Who are the company’s 10 largest customers?”
      • “What is the average outstanding balance of each of these 10 accounts?”
      • “What dollar amount of an individual bad debt would it take to jeopardize the company’s well-being?
      • “Do you currently have any accounts with exposures of this size or larger?”
      • “Is the company in an expansionary or growth mode?
      • “If yes, please provide details.”
      • “Does the company sell on Letter of Credit terms?”
      • “Do competitors offer open account terms?”
      • “Does the company intend to enter any new markets or deal with a different sector within an industry group?”

 

ANSWERS TO COMMON OBJECTIONS

The Objection: “We have never had a debt that has seriously impacted our business.”

Response: “I understand. But there is a level of loss that would seriously impact your company. Do you now have such a receivable or are you likely to incur one in the next 12 months?”

The Objection: “We have a well-balanced portfolio.”

Response: “You are the type of client we want to deal with. We are an extension of sound credit practices. We insure against situations over which you have no control or knowledge.”

The Objection: “We are able to accurately predict swings in the economy or industry.”

Response: “By the time the business cycle has shifted, your existing receivables are already at risk.”

The Objection: “We set aside adequate reserves.”

Response:“Would you like to reduce your reserves?”

TRADE RISK GROUP

305 Floral Vale Boulevard
Yardley, PA 19067

Phone: 215.860.1900  |  Email: trgadmin@traderiskgroup.com

 

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