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Case Studies

EXAMPLES OF BUSINESS PROBLEMS AND CREDIT INSURANCE SOLUTIONS

 

Business Opportunities Abroad

Problem: An exporting company was sending its representatives overseas and wished to be able to conclude order with new customers, without any delays.

Solution: The exporter obtained cover in advance of the overseas visit for each of the potential customers, and was therefore able to conclude his sales without having to await credit clearance. The incremental sales covered his insurance costs.

Problem: An exporter who traditionally traded overseas with certain customers on Letter of Credit terms found himself competing with local suppliers, who were able to offer open account credit terms.

Solution: Credit insurance provided him with cover which enabled him to trade on competitive terms with local suppliers.

Problem: A rapidly expanding exporting company, with strong sales and marketing skills, did not have experience in analyzing overseas companies and foreign accounts.

Solution: With credit insurance the company was able to obtain cover and be kept aware of any changes in his buyer’s risk as he developed and grew his business.

Problem: A company on an expansion program needed extra financing. The bank was able to lend against certain assets, but not all.

Solution: Credit insurance covered the accounts receivable current asset, enhanced the value and the bank was able to lend more against the assignment of the policy.

 

Protection of Personal Guarantees

Problem: The sole proprietor of a medium-sized company was asked to put up a personal guarantee by the bank which was financing his expansion. With accounts receivable representing over 40% of his working capital, he needed to ensure that a series of bad debts did not lead to a call by the bank on his own guarantee

Solution: With credit insurance policy, he was able to protect his receivables, and remove worries of his family about a call on his personal guarantee.

 

Bad Debt Potentially Affecting Growth and Survival

Problem: A small manufacturer was concerned that three of his customers accounted for over 50% of his accounts receivable, and that if one of them was to fail, it would put his business at risk – the domino effect.

Solution: Credit insurance was able to insure him against the failure of the three customers and protect the ongoing security of this business.

 

Problem: A company was prepared to assume a normal level of bad debt as part of the business running costs, but did not want its expansion to be affected by any abnormal bad debts.

Solution: We were able to design a program whereby the company retained risks equating to its normal bad debt, and then provided cover for risks above that normal level.

 

Problem: A manufacturer was planning a quantum increase in both the volume and quantity of its products due to the investment in a state-of-the-art processing line. They were projecting a significant expansion of sales as a result of the investment, and were worried about the larger credit-related exposure.

Solution: We were to insure all new and existing business, thereby reducing the risk of unforeseen bad debt at a time when the company was managing a higher than normal debt level.

Problem: Despite a stable historic credit environment, a company in a low profit margin sector ws predicting increased financial instability among its traditional customers.

Solution: We were able to insure its accounts receivables working asset against losses which would have otherwise been impossible to offset in the slow-growth market.

Problem: A company had an opportunity to sell up to $30 million of product to one buyer. Such sale would result in a credit exposure of $5 million. As both the buyer and the seller were just returning to profitability following the recession, the seller could not jeopardize its recovery by taking such a high credit exposure. Thus, it had to forego profitable sales.

Solution: By sharing the risk with the underwriter, the company was able to limit its exposure and make the sale.

 

Avoiding a Balance Sheet Surprise

Problem: A large company with sophisticated credit management systems and skilled staff wished to protect itself against unexpected “surprise” business failures.

Solution: We developed a risk protection program for them. The major feature was that the first $1 M of accumulated bad debts was retained by the insured and we provided cover for any bad debts above that level

 

Improving Financial Planning and Reporting

Problem: The Financial Officer of a large steel company wished to improve his financial planning and budgeting had concerns about the accuracy of bad debt provisioning.

Solution: With our insurance policy, he has a known cost in advance of the financial year and was able to improve his planning and avoid unexpected adverse balance sheet impact.

 

Uncertainties in Exporting

Problem: A major exporter had no concerns over the creditworthiness of his major customers in certain countries. However, he was aware that foreign exchange had been a problem in the past.

Solution: We provided him with cover which protected him against such an eventuality, through an export policy.

Problem: An exporter was concerned about potential slow payment by a foreign government.

Solution: We were able to provide sovereign risk protracted default cover through Political Risk Endorsement Default by a public buyer.

Problem: Due to increased instability in certain off-shore markets, an exporter was concerned about the trade interruption caused by international hostilities.

Solution: Using an export policy, we were able to protect him from losses caused by contract frustration (e.g. the frustration of the contract due to war and revolution).

TRADE RISK GROUP

305 Floral Vale Boulevard
Yardley, PA 19067

Phone: 215.860.1900  |  Email: trgadmin@traderiskgroup.com

 

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