If you are considering doing business with any of the public companies that are showing signs of financial distress, and credit insurance is not available on that company, how can you protect against bad debt?
One solution is a Trade Receivable Put. A Trade Receivable Put is a financial contract that gives you the right to sell, or “put”, your outstanding accounts receivable to the Put Writer at a predetermined price in the event that your covered customer becomes insolvent during the term of the contract period of the Put. There are a handful of Put Writers, typically banks, and assuming that they have an appetite for covering the specific debtor that you want to get protection on, you can typically get a quote covering up to 100% of your exposure for either 6 months or a year. The pricing of Puts is higher than credit insurance due to the nature of the debtors that are covered, and the pricing can fluctuate significantly based upon supply and demand until you “lock in” your rate. However, if your margins support it, Puts can provide valuable protection while dealing with distressed customers.