Categories
What Experts Think

What Does Export Insurance Cover?

Business owners who work in the import and export trade, or regularly export shipments to international customers may not be fully covered by their current business insurance, should something go wrong with the shipment, and the sale or export of the goods cannot be completed, or the customer fails to pay.

Will traditional business insurance cover this loss? In most cases, no. While you may be protected from loss or damage of your goods, you’ll need a special type of insurance coverage to protect your accounts receivable from non-payment – export insurance, also often known as trade credit insurance.

Wondering what export insurance covers, and if you need it for your company? Learn more about export insurance blow, and find out if you need coverage with a special import export insurance policy.

Export Insurance Is Not The Same As Marine Insurance Or Cargo Insurance

If you are running an import and export business, and you have cargo insurance or marine insurance, you may be wondering if you really need trade credit insurance – aren’t you covered for most situations that could happen on the ship that’s carrying your goods?

Yes, marine insurance covers the loss and damage of ships and cargo – and more specifically, cargo insurance provides full coverage for any commodity or damage that occurs the items during shipment.

But protecting your goods while they’re in transit to their destination is only part of the puzzle. What happens if your goods are delivered to the destination safely and you’re notified that they’ve been delivered – and your customer doesn’t pay? 30 days go by. 60. 90. 120 – and no notice of payment.

Then, it turns out that political instability or corporate insolvency has affected your customer’s ability to pay. Essentially, you’ve lost the sale – and if you’re lucky, you might get your shipment back, but this is not guaranteed. What recourse do you have to get paid?

If you don’t have export insurance, you don’t really have any options. You have to take the loss. But if you do have export insurance, you can file a claim – and be compensated for the loss, by your insurance provider.

Export Insurance Protects Your Accounts Receivable From Default

You can think of export insurance as a way to insure you from risk when offering trade credit to your buyers. Trade credit is a great way for businesses to sell their products more flexibly – but when you extend a line of credit to any company, you’re taking a risk, particularly if it’s a large line of credit, a newer company, or even an established company in a politically-unstable region.

If you want to protect your accounts receivable, and make sure that your business is not heavily affected by a particular customer defaulting on their debt, you can carry an export insurance policy. Then, if you cannot get payment from a customer – due to financial insolvency, protracted default, or the bankruptcy of their company – your export insurance will cover your loss.

Political risk insurance is another important part of international trade insurance. Often bundled with export insurance, it protects your company if political turmoil, such as social unrest, currency problems, or expropriation result in the loss of a sale.

How much does export credit insurance cost? Insurance cost depends on a variety of factors. Although you can insure a single transaction, you will typically insure a large portfolio of buyers, and the insurance company will pay a set percentage of any invoice or receivable that is unpaid. Your premium rate will reflect the average credit risk of your buyers – and the amount of coverage you request.

In general, it’s a good idea to have this type of  insurance – exporters, in particular, should make sure they’re covered, if they often extend long credit terms to customers, or work with more recently-established companies that could carry the risk of defaulting.

Know If You Need Export Insurance – And Get Your Policy Today!

At Niche Trade Credit, our company is an ideal choice for export insurance and trade credit insurance. With great service and reliable rates, we’ve helped insure hundreds of Australian companies. If you have more questions or would like to enquire about our rates and services, please feel free to contact us right away.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

Categories
What Experts Think

Do I need Trade Credit Insurance?

In recent surveys, cash flow problems are some of the most frequently cited reasons why businesses fail to increase their revenue. On top of that, Australian companies are some of the slowest at paying their invoices. For small, medium, and large businesses alike, risking the health of your cash flow isn’t worth it. Increasing volatility in domestic and also international trade means that it’s now more critical than ever to ensure that your business’s revenue and access to capital are appropriately insured and protected against political risks.

At Niche Trade Credit, we’ve been assisting companies of all sizes and across many different industries protect themselves with trade credit insurance. But how do you know if you need trade credit insurance coverage? We’ll explore how an insurance policy can protect you and also expand your market reach.

How does trade credit insurance work?

If you sell goods and services on credit terms with your customers, if they fail to pay, your business is in trouble. No matter how well you manage your business, you don’t have control over what happens on your customer’s end of the transaction. They can experience their own cash flow issues, and political instability and currency manipulations can interfere with your customers’ ability to pay and harm your bottom line. Insurance solutions like trade credit policies protect your business from these types of unpredictable financial mishaps.

A trade credit insurance policy works by protecting your accounts receivable. A policy can cover either part or all of the account, depending on your needs and business goals. A trade credit insurance policy will protect you against bankruptcy and unpaid invoices.

About 20% of a company’s buyers account for up to 80% of sales. Trade credit insurance protects your business from losses that could result from the insolvency of your key accounts.

Is risk management the only thing that a trade credit insurance policy can do for me?

Trade credit insurance policy can do more for your business than protect it from catastrophic losses. Trade credit insurance can act as a financial tool and a sales product.

  • Lending institutions understand that the insolvency of a company’s key customers would jeopardise the repayment of a loan. Businesses who are covered under a trade insurance policy gives them access to favourable lending terms.
  • Credit insurance can also help your company sell more goods and services on credit terms. At the same time, the policy can help you reduce your risk of exposure to nonpayment. Trade credit insurance can also help you take advantage of ideal or cyclic selling periods and expand your reach into new product lines or markets.

Should you continue to self-insure?

Self-insuring your company against unpaid invoices may have worked in the past. But in today’s competitive global economy, self-insuring your businesses is too much of a risk. And recent a cash flow statistics and studies show that self-insuring against catastrophic losses isn’t feasible anymore.

Also, credit insurance gives you better access to credit and gives your company the ability to expand your market reach. You can also deduct your trade credit insurance premiums from your taxes. Self-insuring does not give you these added benefits.

Here at Niche Trade Credit, we’ve been helping our valued clients find trade credit insurance solutions that work for their specific company and their goals. When you contact us, we will explore your options and find a policy for you that will be tailored to your particular needs. Don’t leave your company exposed to credit risks and insolvency. Reach out to Niche Trade Credit today to explore our coverage options from one of our experienced trade credit insurance brokers.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

Categories
What Experts Think

How to Protect Your Business from Bad Debts

As a business owner, you know how crucial it is to protect your business from bad debts and ensure positive cash flow. Cash flow issues and the debt that they cause is the number one reason that Australian companies fail. How can you protect your small business from bad debts and unpaid invoices? Here at Niche Trade Credit, we’ve been helping business owners in the Sydney area protect their companies from insolvency and debt collection with insurance solutions. In today’s article, we’ll explore the different ways you can protect your business from an unpaid debt.

  1. Credit Applications

You don’t want to have to deal with chasing after customers over unpaid invoices. The first step to reducing your risk of bad debts and experiencing future cash flow issues is to have every new customer fill out a credit application form. A credit application form should include the following information:

  • Their full business details.
  • Trading name and ABN.
  • How long they have been in business.
  • If they have any credit guarantors.

Consider asking for and contacting bank references, and any details of the new customer’s suppliers. You could also require the customer to sign a director guarantee. Be sure to check if the customer’s business is registered with the Australian Business Register.

  1. Conduct a Thorough Credit Check

If you need to extend credit to a new customer, it’s critical that you conduct a thorough credit check. Many reputable agencies conduct credit assessments. The cost of a credit check will depend on how much information you are looking to gather. You can also find a lot of information about a potential customer and their trustworthiness via online, third-party review sites.

  1. Impose Clear Credit Terms

Most businesses use a standard 30-day term for credit, but you’re free to impose any conditions you like for your business. Make sure that the conditions you impose are clear, in writing, and that all parties involved understand their obligations.

When setting the terms, make sure to include:

  • The credit limit
  • Late-payment interest

Companies usually review the terms as the relationship with the customer evolves. It’s reasonable to give flexibility to older, valued customers as opposed to new customers.

  1. Invoicing

When you invoice customers, make sure that your instructions are clear, and that no room within the invoicing instructions would give customers an opportunity to delay payment. For example, entering the wrong amount for payment, or failing to include important bank details can lead to a delay. An airtight invoice can help you avoid this risk, and always make sure to invoice promptly and send any follow-up reminders if needed.

  1. Debt Collection

Partial payments or even late payments are better than no payment or the added expense and stress of legal action. If a customer is failing to honor an invoice within the terms they’ve agreed to honor, the first step you’ll want to take is to send them a letter of demand. In the letter, offer a payment plan via installments as an option. Getting the customer to agree to an installment plan and honor their commitment is far less stressful than taking legal action.

However, sometimes it’s not possible to get a customer to agree to installments. If this happens, you can hire a debt collection agency or take further legal action. Before you commit to either option, you’ll want to weight the costs of these services vs. the chances of recovering the debt from the customer.

For added peace of mind, you can always purchase a tailored trade credit insurance policy for your business. Trade credit insurance will cover part or all of your accounts receivable depending on your needs. In the event of non-payment, your cash flow is protected with a trade credit insurance policy. At Niche Trade Credit, we’ve been helping business owners protect their cash flow from insolvency through insurance solutions. Please contact us today to speak to one of our brokers about trade credit insurance services.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

Categories
What Experts Think

What Does a Trade Credit Insurance Policy Cover?

A study published in 2016 from MarketWatch found that Australian businesses are the worst at paying their invoices on time. As an Australian business owner, you want to make sure that your company is protected from insolvency and bad debts. In today’s global economy, it’s also crucial that you protect your bottom  line from political risks. Can a trade credit insurance policy help protect your business and increase your growth? At Niche Trade Credit, we’ve been helping Australian businesses find the best credit insurance coverage for their needs. Today, we’ll explore how trade credit insurance policies work.

How does trade credit insurance protect a business?

When a business sells its goods and services on credit, it puts itself at risk of non-payment. If the buyer is unable to pay for the goods and services after they’ve already received them, the business can be seriously harmed. Cash flow, profitability, and balance sheet problems can

hit your business when buyers don’t pay. Worst case scenario? The company will fail.

So, what can companies do to protect themselves? They can purchase a trade credit insurance policy to cover their losses in the event of non-payment. Trade credit insurance helps businesses maintain a positive, predictable cash-flow so that they can remain competitive in their industry and prevent business failure.

A trade credit insurance policy gives suppliers with the accounts receivable protection they need to protect their business from a buyer default. That includes defaults because of the buyer’s financial instability, or even widespread political instability. Trade credit insurance solutions can protect part or even all of a client’s account receivables. In some cases, policies can also give business owners the ability to set buy credit limits and manage those limits via online systems.

Businesses of all sizes can use trade credit insurance to protect international and domestic trade. Trade credit insurance can also help companies secure financing and working capital from lending institutions, and enable companies to explore new markets and attract new customers with attractive credit terms.

How is the level of coverage determined?

When it comes to trade credit insurance, there is no “one-size-fits-all” policy. Your specific needs and goals will dictate the amount of coverage and the cost of the policy. The size of your credit portfolio, the level of risk associated with your customers, and where your market is located are important insurance factors that will be unique to your business and industry. A trade credit insurance policy is tailored to your particular business. It’s crucial that you reach out to a knowledgeable credit insurance company to discuss your specific needs and your business goals so you can get the best value on a trade credit insurance policy.

What are the significant benefits of a trade credit insurance policy?

Protecting your company from bankruptcy isn’t the only thing that trade credit insurance can do for you.

  • Increase your customer base since new leads will be attracted to your improved credit terms.
  • Expand your market since you’re protected from political calamity.
  • Insured cash flow means you can build stronger relationships with employees and suppliers.
  • Enhanced credit terms can help you retain the customers you already have.
  • Increase your access to favourable credit terms from banks.
  • Give your stakeholders or board increased peace of mind with trade credit insurance protection.
  • Decrease your tax liability by using your credit insurance as a tax-deductible business service.

Are you ready to reap the benefits of trade credit insurance services, and rest easy knowing your company is protected against insolvency and failure? Please contact our knowledgeable representatives at Niche Trade Credit today. Together, we’ll explore your options for a trade credit insurance policy that will protect your business and accelerate your growth.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

Categories
What Experts Think

Three Reasons to Have Trade Credit Insurance

Niche Trade Credit (NTC) knows that trading goods and services on credit is always associated with risk. Trade credit insurance can protect your accounts receivable from taking a hit when a client is unable to pay. The most common types of credit risks covered are;

  • Protracted Default
  • Insolvency
  • Liquidation

As part of a comprehensive credit portfolio, we at NTC offer policies that protect your cash flow and working capital. Spending time tied up with debt collections services is not only time that could be better utilized but doesn’t guarantee prompt payment. We know the value of risk management and the danger even one failed remittance can represent, especially for a new enterprise. Trade credit insurance policies can be combined with political risk insurance representing a powerful means to mitigate the potential fallout.

Protracted Default

If you’re considering expanding credit to existing customers, entering into emerging markets or other beneficial arrangements leveraging credit, you may need trade credit insurance. During the financial crisis of 2008, the number of credit defaults hit an all-time high globally. Companies that find themselves in financial hardship will typically first look to “squeeze” their vendors hoping to get by. Payments for raw materials are often made late or not at all when a company is facing limited cash flow.

The economy is cyclic. Most economists and pundits believe we are overdue for another recession. Companies who hold a few key customers, (less than 10 that make up a majority of their sales) are at greatest risk. If and when another recession comes, credit will falter. Customers that normally pay on time may see extending their obligations as a way to help themselves at your expense.

Insolvency

We at NTC know you investigate customers in order to avoid bad debts. Even the most astute analysis is based on limited information. This is especially true for international customers and those in emerging markets. Predicting future insolvency is a difficult proposition. It typically precedes liquidation (bankruptcy) and often finds the company going through voluntary liquidation, administration, or receivership.

During an insolvency, the company in question will typically try to negotiate with creditors for reduced payments and other arrangements to avoid liquidation. In Australia, this often takes the form of a deed of company arrangement (DOCA). The process is similar in many other nations as it is so common.

Usually companies do not fail overnight. The warning signs and process can take many years to finally end with a successful restructuring or a liquidation. Trade credit insurance removes your company from this danger and the complications that go with negotiating for payment or fighting other legal devices that can ultimately in debt you to your debtor.

Liquidation

Global bankruptcy, liquidation in the business context for Australia, is on track for a 3% rise in 2018. The legal protections afforded by this process make payments for good and services highly unlikely. Trade credit insurance is specifically designed to protect your company from this event. It often comes with little or no warning. Managers and directors will not wish to advertise this potentially panic inducing information. Publicly traded companies are more transparent by virtue of their structure but their proportion to privately held interests is in decline. Since 2013 roughly two thousand publicly traded companies have disappeared serving to widen the disparity.

Liquidation has been cited as the most common reason for nonpayment to credit holding vendors. In addition to the risk of nonpayment, a vendor might find themselves defending against a preference claim. In this scenario, payments or transfers of assets made prior to the liquidation of the customer are called into question. In these cases the claim is levied against your business essentially alleging money is owed to another creditor. The argument is that the other creditor should have been paid before you were. In other words, the creditor asserting the claim has, “preference” to your claim against the liquidated company.

Trade credit insurance is one of the oldest and most well-structured forms of insurance available today. It was originally developed in 19th century Europe to promote trade with other nations. Ensuring payment can not only provide security, but may also serve to convince potential investors to collaborate with you.

Crafting policies is essentially a risk assessment. Our specialists will factor the relative risk represented by your customers and tailor a product that is right for you. Whether your business is large, small, international or domestic, we can optimize your trade credit policy. NTC premiums and benefits are calculated as a percentage of risk and represent the best value for the services offered.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

Categories
What Experts Think

3 Reasons for Political Risk Insurance

If you’re a multinational, exporter or otherwise doing business in emerging markets outside of Australian jurisdiction, political instability can weigh heavily on your chances of continued success. Even if you haven’t considered the angle, private insurance companies such as Niche Trade Credit (NTC) offer varying political risk insurance policies. Packages hedge against the financial losses incurred because of government actions such as protectionist measures, currency fluctuation, expropriation and more.

The risk of doing business in another country is a concern for potential investors as well. Securing outside investment will often depend on the availability of political risk insurance. Niche Trade Credit offers political risk insurance addressing these issues in a strategic way. Using the latest geopolitical analysis and statistical modeling, policies crafted offer the greatest value for your investment.

Protectionism

Nationalism is on the rise across the globe. Talk of tariffs, change in import/export requirements among other actions taken by foreign governments can mean the difference between a profitable arrangement and a bust. Your company might manufacture a product representing years and millions of dollars invested, only to find that a recently imposed tariff will eat up the margin.

Blue Scope Steel exports aluminum and steel to the United States. The recent 25% tariffs imposed by the Trump Administration were cause for concern but luckily, Australia was able to secure an exemption. News of the special arrangement saw a rise of 3% in Blue Scope’s share price. Political risk insurance takes the uncertainty out of the equation. Sooner or later, the odds turn against companies large and small. Aluminum and steel exports to the U.S. may be relatively low, but consider the risk across the spectrum of the 230 billion in Australian exports for 2017, and the case for hedging political risk becomes clear.

Currency Fluctuation

Natural and manipulated changes occur affecting the relative value of national currencies daily. Emerging markets are especially volatile. Today, the Australian dollar might be steady against the national currency where your interests are represented. Central bank interventions due to government policy and instability can rapidly invert an exchange rate. The ability to convert currencies for repatriation is also at risk in developing nations. NTC can tailor a package that’s right for these situations, shielding you from the complex risks that currency can represent.

Expropriation

Historically, expropriation was more narrowly defined. Today, it can take the form of less overt actions preventing a business from conducting itself internationally. Regulatory changes, tax reforms and other legal changes can also indirectly create circumstances that make operation untenable. The risk of direct seizure of assets, forced closures and transfers of ownership are no longer the only avenues for unscrupulous regimes to target successful companies and gain advantage.

Infrastructure developers and sovereign lenders may represent the highest form of political risk taking, especially for banks and financial institutions. Foreign government insolvency is a real possibility. The vast majority of sovereign nations are running under budget deficits. Australia is on relatively solid ground at -1.7% of GDP. The trend for higher debt is increasing across the board. Some economists are pointing to sovereign insolvency as a possible cause for the next global economic crisis. Government funded infrastructure often takes years to plan, execute and finalize. Competitively bidding on this moving target is risk enough. In the time it takes to complete a project, governments can change and circumstances can become unfavorable. Committing to a long-term infrastructure improvement without political risk insurance is an invitation for trouble.

Higher levels of risk come with more opportunity for profits. Underwriting the risk only makes good business sense and our specialists, at NTC, are ready to help. The circumstances between nations and types of business transacted call for a personalized approach. Working closely with our clients to develop the best possible insurance against political risk is why your next choice should be NTC.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

Categories
What Experts Think

What is Trade Credit Insurance and Why Should You Care?

Companies offering credit to customers expand their market substantially. The time afforded to customers, through credit management, to pay for goods and services has benefits for both parties. The vendor often benefits from increased purchasing and more regularity of orders placed. The customer benefits from expanded credit terms and increased cash flow. In some nations, it is customary for regular vendors and customers to exchange credit memos, as they are more cost effective, simplify exchanging currency and circumvent tax deductibles and liabilities.

The downside is found in the credit risks associated with these practices. If non-payment occurs, the vendor is left absorbing bad debts and working with collection services seeking remuneration. Credit risk is mainly shouldered by the vendor but there are ways to mitigate this risk.  The simplest risk management strategies are internal and include good research, consulting credit ratings and building a strong relationship with customers. Yet, even the best strategy will fall short in time.

Credit insurance (CI) and trade credit insurance (TCI) are often used interchangeably. Where TCI focuses on international credit, CI is more domestically optimized. The challenges in doing business outside of Australia are complex and seeking legal remedy is often infeasible. TCI offers protection for a wide variety of situations and can be tailored to your specific needs. It can include political risk, import/export risk and others. In addition to foreign trade, domestic customers are equally capable of not paying their debts. Our credit insurance is tailor made for your customer portfolio as levels of coverage, premiums and benefits can be adjusted to your comfort level.

Why Should You Care?

Do you offer credit to your customers beyond the standard payment terms? Perhaps you have a regular customer with several million dollars in payables owed to your company. It’s more common than many would realize but what happens when that customer is unable to pay? The answer largely depends on whether or not you’re insured.

Even though the benefits for securing policies have been described and are well known, many companies choose to remain uninsured. Accounts receivable, for the majority of companies, represents 40% of their total value. A study from 2016 found that Australian businesses are the worst at paying bills on time. The study concluded that 72.5% of invoices are paid late. They also found that;

  • 19 billion is tied up beyond the customary 30-day payment period and considered late.
  • 90% of small business failures are caused by poor cash flow.
  • The average bill is paid 23 days late, if at all.
  • 62% of businesses who failed due to poor cash flow attributed their failure to one customer.
  • 1 in 10 invoices are never paid.

These observations are in line with other statistics that show small and medium sized (<150 employees) businesses are vastly underrepresented in the Australian credit insurance markets. The perceived complexity and cost for policies has been a major barrier for small business participation. Unfortunately, it is more often the small business that is more at risk from defaults, non-payments, rejections and political factors. Larger well-established corporations might be better suited to absorb the loss but are still missing out on the opportunity to protect themselves from bad debts if left uninsured.

Automation and the digital nature of emerging services offered by private insurers are expected to drive growth in the coming years, especially for small business participation. The variety of foreign and domestic trades that occur has created a responsive industry that can tailor policies to suit most any requirements, large or small.

At Niche Trade Credit (NTC) we understand the value in making relationships with our clients. We encourage large and small businesses to seek us out and insure their trade credit.  Our experts can more clearly define the types of coverage offered, levels of coverage and how these issues apply to your unique situation. Don’t fall victim to poor cash flow as 90% of small business have in the past. For a fraction of the cost of one delinquent invoice, you could be covered too.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

Categories
What Experts Think

If you are Smart there is a Great Opportunity

I came across this article by Alexander Kamitz of Prima in Vienna Austria.

He highlights 6 key things to show how credit insurance directly benefits your Profit.

  1. Credit Insurance lets you make the right decisions.
  2. Credit Insurance supports internal procedures.
  3. Credit Insurance maybe used as collateral.
  4. Credit Insurance acts as an early warning mechanism.
  5. Credit Insurance eases the decision making in a Group of companies.
  6. Credit Insurance covers your losses.

The full article is below and well worth a read.

Running a business means acting in many different fields.

There are human resource issues, IT issues, finance issues, marketing issues, production issues… and many many more. And there is insurance. After all, in whichever field we invest resources and funds, in the end all this effort is aiming to pay off as profit. Profit is what running is business is for.

 

Which role does insurance play in this context?

Well, that cannot be easily answered. Because not each kind of insurance is the same.

Doubtlessly insurance is needed for many different purposes. And doubtlessly many kinds of insurance are a must have for each business.

Let’s take fire insurance. Everyone has it.

Fire insurance may secure a company’s existence. But will it have a positive effect on profit?

Well, eventually it may.

Anytime your company’s property is damaged by fire, your profit will be restored through payments by your insurance provider.

Luckily this rarely (if ever) happens to most companies. Therefore in most of the years the premium you pay for fire insurance will have a negative effect on your profit. It’s just costs. Nonetheless, it’s important to point out that it is of course essential to have fire insurance in place. However, this is how insurance is often looked upon. And for many kinds of insurance this may be true. But it’s not true when it comes to credit insurance. Yes, credit insurance as well as other kinds of insurance may secure a company’s existence. A major loss due to an insolvent buyer has killed many formerly successful operating businesses. All alone for this fact it is essential to have credit insurance in place, as well as fire insurance and others. And yes, credit insurance means costs. Each year. Even though none of your buyers turns insolvent. But what makes credit insurance different now? Where is the additional link between credit insurance and profit? Well, credit insurance is a very unique kind of insurance. In fact it is not only insurance, it’s more of a toolbox that gives you additional benefits which will have a direct impact on profit, even though none of your buyers is insolvent.

Why is that?

1. Credit insurance lets you make the right decisions.

And lets you make decisions you eventually wouldn’t have made without credit insurance.

Let me just give you one (out of many) example. Imagine a new prospect comes knocking and wants to buy goods worth a major sum.

You never heard of that new buyer. Maybe it is from another country. Maybe from a country in which you’ve not yet sold your goods.

Which decision will you make?

Will you supply goods worth 500.000 Euro on open account?

Well, if you take things serious you will start a procedure in order to assess your new buyer’s credit worthiness.

Buy information agency reports. Check annual reports and balance sheets. And finally you will make a credit decision.

However, whichever decision you make, in the end it’s still based on insecurity.

Because you will not have a guarantee, that your buyer will pay.

A decision made under the influence of insecurity may force you to be restrictive.

Maybe by starting the new business relationship more carefully. By supplying smaller amounts of goods. Or by insisting on short payment terms or even prepayment or additional securities (bank guarantees etc.).

Maybe your new buyer will not like this approach and look somewhere else.

Here’s where credit insurance steps in.

Probably your buyer is one already being monitored for years by your credit insurance provider.

What if someone would give you a promise that your new buyer will pay. The full 500.000 Euro. Credit insurance gives you that promise.

It lets you make a sales decision you eventually wouldn’t have made without credit insurance.

It lets you more easily approach new clients. Expand your business with existing clients.

And lets you save costs and handling effort you spend for other kinds of securities.

Because from the time you have credit insurance in place, you no longer need to make decisions based on insecurity.

Credit insurance lets you change your behavior. Without being at risk. Credit insurance may let you increase sales and thus may increase profit.

2. Credit insurance supports internal procedures.

Each company has its credit management.

You will not only have one case like the above mentioned new buyer, but many of them. Maybe even many of them a day.

And you will have a bunch of existing buyers whose credit worthiness needs to be monitored.

You will have your internal procedures in order to monitor your huge portfolio of buyers.

Generating sales decisions for new buyers, monitoring existing buyers, handling and securing your huge trade credit portfolio means effort.

However these procedures are organized, you will need manpower, you will need to spend money on buying information and and and….

Credit insurance keeps your total trade credit portfolio monitored.

In case once your buyers turns risky, you will be informed on time.

Credit insurance lets you save money spent for internal credit management procedures and thus lets you increase your profit.

3. Credit insurance may be used as collateral

– and can be assigned to any financing institution, bank or factoring provider.

It eventually lets you open new lines of credit at an eventually lower price and thus lets you increase profit.

4. Credit insurance acts as an early warning mechanism

– and ideally lets you stop selling to buyers before they turn insolvent.

Being a creditor within an insolvency procedure again means effort.

Avoiding this effort lets you save money and thus increase your profit.

5. If you are a group of companies,

– you can roll out credit insurance to other related business units and assure standardized credit management rules throughout the whole group of companies. You can have a centralized monitoring.

Credit insurance will ease the decision making processes within your group and thus increase your profit.

6. And, last but not least, credit insurance refunds your losses

– you suffer from insolvent buyers. And thus increases your profit.

I could add another number of facts how credit insurance can have a direct impact on a company’s profit.

Those are leading more into the details of each company’s internal procedures and may differ from company to company.

However, what I wanted to point out is, that in many cases credit insurance pays for itself and leaves you better off, even though you did not suffer from losses in the past.

In case you should belong to those few lucky ones not having to deal with insolvent buyers, it is probably because you have a very good and efficient internal credit management.

Especially in a situation like this you can draw the most benefits out of credit insurance, ease your internal procedures, make better decisions and increase your profit.

Categories
What Experts Think

What is Trade Credit Insurance?

When it comes to business, there’s always going to be some risk involved.

Business owners may take steps to mitigate some, but fail to do the same with others.

When not all bases are covered, so to speak, there’s no guarantee that the business will overcome the hazards it may encounter now and then.

For example, a business owner gets too excited about a new client that they forget to take steps to ensure payment for goods they have to ship to said client.

Since most businesses rely on a steady cash flow, the disruption that non-payment from even one customer can have a big impact on their finances. This is where trade credit insurance comes in.

(Now going back to the question)

What is Trade Credit Insurance?

Otherwise known simply as credit insurance, this is an insurance policy as well as a risk management product that private insurance companies as well as government export agencies offer to businesses.

The goal is to protect the company’s accounts receivables from loss stemming from credit risks.

Usually, these risks involve the client’s inability to pay, whether they simply don’t wish to pay yet, or they become insolvent or else bankrupt.

Some policies may even include a form of political risk insurance, to account for difficulties in collecting payment from foreign clients owing to political unrest, currency issues, and other similar problems.

(The next questions is…)

What Businesses Need Credit Insurance?

Long story short, businesses of any size need credit insurance, although not all of them do get it.

That’s because trade credit insurance is one way to manage the risk of bad debts, which any company would be desperate to avoid.

In fact, a study has shown that an average small business owner can carry over US$195000 in bad debt, which – obviously – is bad for any business’s financial health.

That said, how can you tell if your own business needs credit insurance?

There are a few signs to note, such as:

1. Competition. 

– Let’s say you can only afford to offer customers $25000 line of credit on 15-day terms, while one of your competitors can extend $50000 on 15-day terms, you can tell which company will win the business.

Trade credit insurance will let your business extend riskier terms to customers, since you know you have an extra layer of financial protection to keep you from losing out on deals.

2. High customer credit risks.

Unfortunately, insolvency and bankruptcy are very real occurrences, and they can make collecting extremely difficult.

Being unable to collect your accounts receivables on a regular basis will eventually lead to a negative effect on your cash flow.

Besides revisiting your credit terms, credit insurance will help you determine which customers are high credit risks.

3. Quick turnarounds for opportunities.

Businesses presented with sales opportunities need to act quickly, assessing the financial stability of the potential customers as well as their purchasing power before they can extend credit.

When the likelihood that a customer will make a purchase hinges on how much credit they have available, credit insurance can help you take advantage of that opportunity in a timely fashion.

Essentially, any business owner who wants their business to grow will invest in trade credit insurance, since that extra layer of financial protection will help you manage your credit terms, capitalize on opportunities, and improve the overall health of your business’s financial health.

Choosing a Trade Credit Insurance Provider

Purchasing credit insurance is often more easily said than done, because policies can be quite long, and there are many credit insurance providers to begin with.

Overall, there are three principles to consider when buying credit insurance and choosing a provider.

The first is expertise.

You need to choose a provider that understands how your business runs and knows the inherent risks of your type of business.

Second, there’s quick response.

The provider should be able to react quickly enough when your company needs insight into a potential customer or else needs to update a risk mitigation strategy.

They should also help you make quick decisions when it comes to, say, expanding credit limits in comparison with your competitors’.

Finally, you’ll want to work with a firm that is interested in a long-term partnership with your business, rather than a one-off transaction.

Whether it entails really understanding your company or customizing a policy to suit your individual level of risk, the right trade credit insurance provider for you should be a true partner, not just an insurance provider.

Categories
What Experts Think

What are the Roles of A Liquidator Or Administrator in Australia

I hope you are well and look forward to the Summer season as much as I do. I play cricket for my local club St Ives D2 and look forward to some sunny days.

I am always reminded on a daily basis what a blessed country we live in. Niche Trade Credit is a corporate donor of www.love2give2children.org.za.

They basically feed thousands of school children every day in South Africa and any donation will be hugely appreciated. Please go to their website and do this directly or contact me and I will help you out.

In this months talks I would like to discuss about the role of a Liquidator or Administrator.

In credit insurance normally the last thing to do to get a claim paid from the underwriters is a confirmation of debt from a liquidator or an acknowledgement of the debt from an Administrator.

This can be a frustrating time for a client as liquidators are sometimes slow to react to this request from the client or the broker.

At Niche Trade Credit we have strong relationships with all liquidators and Administrators and we have been known to get these confirmations and acknowledgements in a very timely basis.

So what is expected of a Liquidator, please read below….

What are the Roles of A Liquidator Or Administrator in Australia?

What is a Liquidator

A Liquidator, in law is a person or officer which is appointed when a company goes into liquidation.

It then becomes this person’s duty and responsibility to collect all the company assets and also to settle claims against the company before the company is dissolved or liquidated.

There are 3 types of liquidation; Liquidators are trained to deal with all 3 types.

The 3 types are:

1. Members Voluntary Liquidation

This is where a company is still solvent, all creditors the company has are paid in full and the remaining funds are distributed to directors and/or shareholders.

This is opted for where a business has accumulated a large amount of funds and chooses to dissolve the business.

2. Creditors Voluntary Liquidation

This is when a company becomes insolvent and can no longer meet its financial obligations.

3. Court Liquidation

This is where the directors or creditors apply to the courts to have a liquidator appointed, also due to not meeting financial obligations.

What is a an Administrator?
An Administrator is a person that is responsible for the running of a company or business. An Administrator is also an officer who is legally appointed to manage as well as dispose of the will or estate of a person who is deceased or a debtor.

An Administrator is appointed to protect a company from any one creditor while he attempts to save or sell a struggling business, without the hassle of dealing with claims against the business.

In many instances a Liquidator and Administrator is one and the same person, however many companies prefer to appoint separate individuals for this.

In cases where this officer in question is suitably qualified to act as both, a company may appoint only a single officer to perform both the duties of an Administrator and the duties of a Liquidator.

The role of a Liquidator and/or Administrator in Australia

The role of a liquidator is to investigate all the financial affairs and concerns of a company during the course of going bankrupt. The liquidator has to establish whether the company has any illegal or improper business dealings or transactions that have been made, this also included insolvent trading offences, void transactions and any preferential payments that could possibly have been made by the company and/or its directors.

The liquidator will also be required to review the financial books of the company to establish why the company has become insolvent. Should these financial records not be available, the company is to be deemed as being insolvent until such time as these financial records are found and made available for further investigation.

A liquidator is to collect all company assets, recover all monies owing to the company, distribute available funds to creditors which are owed and should there then, after settling all debts, be a surplus, this is to be distributed to the directors and shareholders.

The Liquidator is then required to submit a full report on the company and its affairs to the Australian Securities and Investments Commission (ASIC). This report will also include an application to deregister the company, which is deemed to be the final part of the liquidation process.

A liquidator is responsible for closing off all company affairs and if need be, the liquidator will need to be accountable to the courts, any and all creditors that the business has and all shareholders. Employees are also to be considered creditors and are to be settled if there are any funds owing to them.

A liquidator should also discharge all liabilities that the company may have as well as investigate and report any instances of misfeasance by individuals and attempt to recover any damages such individuals might be liable for.

There are certain legal or statutory requirements of the liquidator, these are:

  • A court liquidator is to cause the company’s property to be collected and applied in discharging the company’s liabilities.
  • That a liquidator in voluntary liquidation is to ensure that the property of the company shall be applied in satisfaction of its liabilities.

Once a liquidator is appointed, all directors’ cease and they are required to assist the liquidator in all matters arising during the liquidation process.

In a court liquidation, directors must within 14 days of the liquidation process being started, submit to the liquidator a report on all the company’s affairs. This report should contain all assets and liabilities of the company as at the date on which liquidation commenced.

Creditors Committee and Committee Meetings

A Committee of 4 or 5 people may be elected to assist and advise the liquidator as well as to supervise the process of liquidation, but the liquidator has the right to make the final decision with regards to the process, however the liquidator must take the Committee’s advice into account. The liquidator will become the chairperson of these meetings and minutes of these meeting must be kept for future reference. In order for creditors to form part of this committee, the creditor must represent themselves personally, by an attorney or by another individual authorised in writing to do so.

The liquidator must give creditors 14 days’ notice of a meeting, such notification can be sent by post, fax, electronic means such as email or personal delivery. The meeting must be advertised in the local newspaper 7 days prior to the meeting date.

Expected of a Liquidator

  • A liquidator must be impartial and fair at all times.
  • A liquidator is required to investigate all company affairs from date of inception to its current state.
  • The liquidator must act with diligence and the skills they have been equipped with.
  • A liquidator should always avoid being place in a position where personal interests become a factor and begin to conflict professional duties.

Being a Liquidator is not an easy task and in most cases each insolvency process is a lengthy one. Diligence and professionalism is key to being successful as a liquidator.

DISCLAIMER:
No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publicationis sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.