Accounts Receivable Insurance: Understanding the Benefits and Costs

An Overlooked Business Growth Strategy

The one business growth strategy nobody ever talks about is insuring your receivables to expand sales.

The One Business Growth Strategy Nobody Ever Talks About

How are you scaling your business?

Do you have a business plan growth strategy in place, and if so, are your teams’ efforts paying off?

Achieving strong and profitable growth can be an elusive challenge for many companies, but the probability of success heightens when you have a strategic plan and resources in place. As the leader of your organization, you want your growth strategy to empower you and your teams to confidently seize new opportunities.

Designing an expansion strategy requires additional focus on overcoming obstacles to business growth. You need to remain agile, stay on top of market changes, manage your cash flow effectively, keep the supply chain running, and stand out from competitors. But most importantly, for your company to grow, you need to expand existing customer relationships and take on new ones.

So, how do you overcome the obstacles and adapt your business strategies to fuel growth?

The one business growth strategy nobody ever talks about is insuring your receivables to allow for safe sales expansion.

Can you think of a customer who was refused an order by your credit manager? Or perhaps, a new sales opportunity that fell through because the account was deemed risky? Are you being too conservative when opening new sales accounts? How about growing existing ones?

A Allianz Trade survey of 250 North American CFOs of companies with at least $5M in annual revenue revealed that on average, $1.1M in revenue was left on the table as a result of a conservative risk posture.

It is your responsibility to protect your business from catastrophic losses, as well as maximizing its growth possibilities, but restricting sales is a risk mitigation strategy that should only be used after a deep analysis of all available information is conducted. The good news is that accounts receivables insurance may offer a better solution.

An accounts receivables insurance policy – also known as trade credit insurance – allows companies to feel secure in extending more credit to current customers, or to pursue new, larger customers that would have otherwise seemed too risky. The protection it provides allows a company to increase sales and grow its business.

Many businesses don’t know trade credit insurance is available, though it is very common for businesses around the world. As with any insurance product, leaders perceive the primary reason to purchase trade credit insurance is simply to indemnify losses incurred from payment default. However, in reality, the most common benefit companies receive by investing in a policy is that it helps them increase their sales and profits without the additional risk.

“The value of credit insurance is not just the protection. We use credit insurance as a tool to expand our business faster and more effectively, not to solve a problem,” said Alain Côté, Genetec’s Chief Financial Officer, during an interview.

Unlike other types of business insurance, once a company purchases trade credit insurance, the policy does not get filed away until next year’s renewal – the relationship becomes dynamic. A trade credit insurance policy can change often throughout the policy period, and the credit manager or finance department plays an active role in that process.

There are many ways to scale your business by securing its receivables. We take a look below at 6 specific ways. We also talk about the benefits of a trade credit insurance policy in our blog post Extend Credit to Grow Sales, and if you aren’t yet offering credit terms to your customers, you should also check it out.

Trade credit insurance gives you the confidence that you will be paid for what you sell and greater knowledge of current and prospective customers so you can reach your full potential.

The key is having the right information to make informed credit decisions and therefore avoid or minimize losses. Using this information, companies have the confidence to make more strategic decisions to profitably grow their business.

  1. Increase market share: Offer better terms and raise credit limits to grow sales and enhance customer relationships
  2. Boost market penetration: Evaluate credit risks, prequalify customers, and have added protection to confidently add new buyers
  3. Expand to foreign markets: Make strategic credit decisions and offer competitive terms overseas, eliminating due upon receipt or upfront payments
  4. Grow with a key customer: Aggressively grow sales with a key customer without the worry of concentration risk
  5. Obtain financing: Insured receivables translate to secured collateral which means more working capital at more favorable rates
  6. Support acquisitions: Create coherent credit processes, safely take control of receivables and understand the creditworthiness of a new customer portfolio
– Rick Ekstein, former President and CEO of Weston Forest Products

Since 1990, Weston Forest Products, one of North America’s leading full-service distributors and re-manufacturers of industrial lumber, has incorporated credit insurance into its business strategy. The Ontario-based company extends credit daily and the unique business intelligence found in Allianz Trade's database helps the company make informed selling decisions to profitably steer its business.

Uncertainty too often caused the company to be overly conservative with its credit limits, which inhibited growth.

“When you’re in a position of extending credit to a new customer, your decision can’t wait. They make it very quick and easy for us to get an opinion on whether we should be pursuing that business” said Rick Ekstein, former President and CEO of Weston Forest Products, in reference to their partnership with Allianz Trade.

Trade credit insurance allows the company to capitalize on opportunities while comfortably reducing risk because better knowledge about its customers lets it extend higher limits and be more competitive.

How would your company’s growth strategy be different if you knew you would get paid for everything you sold?

If you’re like most Allianz Trade clients, you would increase sales to new customers and extend higher limits to current ones – all with the peace of mind that you are protecting your business from catastrophic risk.

“Allianz Trade has made our risk management policies better. It’s given us more structure, more accountability, and made us a better company. Over the years, our partnership with Allianz Trade has proven to be a good investment. Even if I were to never make a claim, I would look at it not as a business cost but as an investment with a return” said Ekstein.

The ultimate goal of a trade credit insurance policy is not to simply pay claims should they arise, but more importantly to help policyholders avoid foreseeable losses. If an unforeseeable loss should occur, the indemnification aspect of the trade credit insurance policy comes into play.

 “Credit insurance provides comfort to all of our stakeholders,” said Ekstein. “Our sales people know they are selling to worthwhile customers, our suppliers give us more credit knowing we have coverage, our banks lend more, and we have the peace of mind knowing we are covered if a loss occurs.”

To find out how other Allianz Trade customers use credit insurance to grow their business, visit our case study page. Or, to find out how credit insurance actually works, visit our blog How to Grow Your Business Safely.

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