Welcome to TradeCreditRisk.com
Zev Yardeni
Credit Insurance Services
68 South Service Road, Suite 100
Melville, NY 11747
(631) 465-2080
info@tradecreditrisk.com
Credit Insurance policy is a contract of financial accommodation. Credit Insurance policy agrees to insure your firm against losses due
to insolvency of buyers. By insuring your commercial accounts receivable, you safeguard against the potentially devastating effects of a
loss caused by insolvency or delayed payments of one or more of your key customers.
Our credit insurance policy can be designed to cover your domestic
and/or export receivables due to certain types of risk.
- Commercial non-payment risk related to the buyer itself due to:
-
- Insolvency
- Protracted Default (non-payment within 6 months after due-date)
- Pre-credit risk: risk related to losses caused by a buyer's insolvency during the manufacturing or contract period i.e. before delivery of goods or completion of contract
- Political non-payment risk related to the country of the buyer due to:
-
- Transfer Difficulties: political or economic events preventing or delaying transfer of payments
- Government Moratorium: decision from the government preventing release of funds
- Contract Frustration: decision preventing performance of the contract
- (Civil) War
- Export License Cancellation
- Protect yourself!
-
Credit Insurance Services can provide you with full protection for both types of risks.
Credit Insurance:
Accounts Receivable Protection
Credit Insurance policy is a contract of financial accommodation. A Credit Insurance policy agrees to
insure your firm against losses due to insolvency of buyers. By insuring your commercial accounts
receivable, you safeguard against the potentially devastating effects of a loss caused by insolvency
or delayed payments of one or more of your key customers.
Credit Managers are by definition Risk Managers. Their objective is to protect their firms'
investments in accounts receivable by minimizing bad debt losses, while granting competitive
terms that maximize sales and profits. In the current business environment, this objective is
hard to achieve. According to Dun and Bradstreet, a leading international credit mercantile agency,
tens of thousands businesses failed in any given year. Credit Insurance is affordable sales
expansion tool.
The financial activities of a firm who transact its business by selling goods or provide service
on short terms credit basis (credit terms less than 180 days), the Accounts Receivable usually
represents 36% of the current assets, 40% inventory, 12% cash and 12% other current assets are
reflected (such as prepaid taxes).
The Accounts Receivable proportion of the current assets, and its timely availability, will suggest
that the accounts receivable is dependent upon to meet a business concern short term obligations,
and thus have to be efficiently controlled and protected.
- Type of Risks That May Cause Insolvency
-
Risks can be classified according to the cause of their origin of loss:
- Risks of destruction of property through the physical hazards of nature, such as storm, a flood or fire.
- Uncertainties in the production process, such as variation in the strength or the availability of materials, product liability, or the effectiveness of labor.
- Social risks caused by deviations of individual conduct from what is expected, such as theft or negligence by management, and by the impossibility of predicting the behavior of social groups, such as strikes, riots, wars and tax reforms.
- Risks caused by the failure or inability of individuals to use knowledge/information which is accessible to them or their competitors, such as failure to use or misinterpretation market research information.
- Market risks, such as price reductions between the dates of purchase and sale of commodities.
These five classes of risks are not mutually exclusive. The classification does, however,
illustrate the widespread sources of risks endangering business viabilty and survival.
Contact Information
- Email
- info@tradecreditrisk.com
- Phone
- (631) 465-2080
- Fax
- (855) YARDENI
(855) 927-3364
- Mailing Address
-
68 South Service Road, Suite 100
Melville, NY 11747
FAQ
- Why should you insure yourself against credit risks?
-
With economic instability on the rise and insolvencies up 300% over the last 10 years, peace of mind is a good reason for credit insurance!
We give you the security of knowing that your receivables are protected, allowing you to sleep at night.
- How can credit insurance work as a financial tool?
-
By facilitating financing of Accounts Receivable. Lenders recognize that the insolvency of a company's key customer may jeopardize repayment
of a loan. Credit insurance reduces this risk and may result in more favorable lending terms.
- How does credit insurance work as a sales product?
-
By allowing increased sales. Credit insurance may enable you to sell more goods on credit terms while substantially reducing the overall
risk of exposure to non-payment. It also may enable you to take advantage of peak and cyclical selling periods and to safely expand into new
product lines or territories.
- How does credit insurance work as an insurance product?
-
By providing Catastrophic Loss Protection. Generally, it is recognized that 20% of a firm's buyers account for 80% of sales.
Credit insurance protects against the catastrophic loss resulting from the insolvency of one of those key accounts.
- How much will it cost?
-
Premiums usually cost a fraction of 1% of sales and are based on the type of business, annual sales and loss experience.
- Must all accounts be insured?
-
No! The Policy is flexible and can be tailored to fit your specific needs. It can cover your entire portfolio or only your
largest, key accounts... those which would create a catastrophic loss for your company if they became insolvent. You make the decision.
- What types of losses are covered?
-
Your policy covers many loss situations, ranging from bankruptcy to uncollectible accounts.
- Why not continue to "self-insure"?
-
Although some companies have chosen to self-insure in the past, doing so now may cost you more. Under the 1986 Tax Reform Act,
businesses can no longer use the bad debt reserve method of accounting to determine tax deductions. On the other hand, Credit
Insurance premiums are fully deductible, allowing you to put the cash you now have in reserves to better use.
How Can Credit Insurance Benefit My Company?
Credit Insurance offers you three major benefits:
- Risk Protection - It can protect you against catastrophic/unexpected bad debt losses.
- Better Financing - It can enable you to increase your borrowing power.
- Increased Sales - It can help you expand sales to new or current customers.
- Risk Protection
-
Imagine the impact on your company if one of your best customers should go bankrupt.
Credit insurance protects against losses resulting from insolvency or protracted default of your buyers. If you are like most companies,
80% of your business comes from 20% of your buyers.
- As a financial tool
-
You can name your bank as "loss payee" on your credit insurance policy, providing your bank with security for lending. Banks know that the
insolvency of your customers can jeopardize your ability to repay your loan. They also know that if you have credit insurance, you have a
tool that can help reduce this risk. Possible benefits include more favorable terms on your loan, or greater borrowing capacity, especially
on export receivables, since banks typically do not finance those accounts without added security.
- As a sales tool
-
Credit insurance may enable you to sell more goods on credit terms while substantially reducing the overall risk of exposure to non-payment,
take advantage of peak and cyclical selling periods, and safely expand into new product lines or territories. If you export, you may gain an
advantage over your competitors and win business by being able to offer credit terms instead of requiring expensive letters of credit.
Credit insurance can help you maximize sales while minimizing your risk!
Product Information
Credit insurance coverage is available for both your domestic and/or export customers and provides flexible coverage which can be custom-tailored to meet your needs.
Coverage may be written to include all of your customers or may be targeted to cover only your key buyers. You determine the level at which you consider your customer to be a key customer.
We can structure a program for you which balances coverage and premium to meet your specific objectives.
- What can be Covered?
-
Credit insurance protects receivables resulting from open account transactions of goods and/or services between you and your customers.
Excluded from your credit insurance policy are:
- Intercompany sales
- Transactions with government institutions
- Private individuals
- Types of Commercial and Political Risks
-
Commercial non-payment risk related to the buyer itself due to:
- Insolvency
- Protracted Default (non-payment within 6 months after due-date)
- Pre-credit risk: risk related to losses caused by a buyer's insolvency during the manufacturing or contract period i.e. before delivery of goods or completion of contract
Political non-payment risk related to the country of the buyer due to:
- Transfer Difficulties: political or economic events preventing or delaying transfer of payments
- Government Moratorium: decision from the government preventing release of funds
- Contract Frustration: decision preventing performance of the contract
- (Civil) War
- Export License Cancellation
- Protect yourself!
- Credit Insurance Services can provide you with full protection for both types of risks.
What does it cost?
Costs related to your credit insurance policy are determined by:
- Amount of insurable sales, i.e. sales made to your covered buyers
- Industry classification of your buyers
- Terms of sale agreed with your buyers
- Your past sales and bad debt experience
- Countries where your buyers are located
- Type/amount of risk sharing (e.g. co-insurance, deductibles) that you are willing to accept
- Number of buyers
Typically the premium you pay for credit insurance varies between 0.1 % and 1 % of your annual insurable sales.
Please note:
Types of Insolvency
- Insolvencies covered under your policy are:
-
- A formal dissolution of a corporate entity or sole proprietorship
- A bankruptcy filing including Chapters 7, 10, 11, or 13
- Liquidation or receivership
- Analogous cases of insolvencies
-
- A BUYER who is a sole proprietor shall have been judged mentally incompetent
- The business assets of a BUYER shall have been sold to satisfy a tax lien
- A proceeding for the relief of a BUYER shall have been instituted in a court of bankruptcy
- A BUYER shall have transferred or sold its stock in trade in bulk
- Possession shall have been taken under security agreement or other instrument having like effect given by a BUYER on its assets in trade or equipment
- A receiver shall have been appointed for the BUYER
- A general meeting of unsecured creditors is called on behalf of the BUYER, with the date of the first meeting constituting the date of INSOLVENCY.
- A BUYER or a third party shall have made a general offer of compromise in writing to its creditors for less than its indebtedness
- A BUYER'S assets shall have been assigned to or taken over by a committee for the sole purpose of liquidation
- A BUYER shall file an assignment or make a proposal to creditors under the Canadian Bankruptcy Act. The filing of the assignment or the date on which the proposal is filed shall constitute the date of INSOLVENCY
- A receiving order is made against the BUYER under the Canadian Bankruptcy Act. The date of the receiving order shall constitute the date of INSOLVENCY
- A BUYER'S assets shall have been sold under the Canadian Bank Act or a winding up order under the Dominion Winding Up Act of Canada is made against a BUYER
Credit Insurance Can Pay For Itself!
With a Credit Insurance Services credit insurance policy your Account Receivables will be protected against unexpected credit losses.
This means that you no longer have to restrict potential sales to keep your company's credit risk at a minimum! You can safely maximize
sales to new and/or existing customers because the majority of your credit risk has been transferred from your balance sheet to ours.
Just add one new customer or expand sales to one existing customer and credit insurance will protect your entire portfolio and pay for itself!!
Assumptions | |
Annual Sales on Open Account | $10,000,000 |
Gross Profit margin | 20% |
Annual Turnover @ 60 days | 6X |
Example | |
Increased Sales | $200,000 |
Increase in Gross Profit | $40,000 |
Annual Premium cost (sales x premium %) ($10,200,000 x 0.25%) | $25,500 |
Credit Insurance is More Effective Than Self Insurance
Assumptions: |
Without Credit Insurance |
With Credit Insurance |
Annual sales: |
$10,000,000 |
$10,000,000 |
Gross profit: |
10% |
10% |
Bad debt loss: |
($100,000) |
($100,000) |
|
Claim Payment (assumes 20% Co-Insurance) |
$0 |
$80,000 |
Bad debt loss: |
($100,000) |
($20,000) |
Credit Insurance Premium (0.3% of Annual Sales) |
$0 |
($30,000) |
Total cost (Net Loss + Premium) |
($100,000) |
($50,000) |
Net Sales |
$9,900,000 |
$9,950,000 |
|
Additional Sales Needed to Offset Loss |
$1,000,000 |
$500,000 |
With our credit insurance policy, your total cost would be 50%
less than if you would self insure!
-
Additionally, the credit insurance premium is
tax deductible,
further lowering your total costs.
-
If you suffer larger losses, the cost benefits of credit insurance
are magnified
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