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How to Increase Business Line of Credit With Trade Credit Insurance

You are likely all too aware that when things don’t go as planned at various stages in your business cycle, the need for more working capital increases.

The obstacles to improving working capital and financing are increasing as well.

Even before COVID-19, one in five financial leaders that participated in our Risky Business survey said bank financing was a major area of concern. Additionally, 44% of respondents also said that the most frequent result of unpaid invoices was cash flow disruption impacting operations.

One of the best ways to increase your line of credit with bank or other lender is by protecting your receivables with a trade credit insurance policy. 

Lenders usually limit what you can borrow against your receivables because of the perceived risk. 

But banks consider receivables insured by trade credit insurance as secured collateral. It often means they will lend more money at a lower interest rate to companies that have trade credit insurance.

How can credit insurance help companies obtain better lines of credit?

In the video above, trade credit insurance expert Greg McBride, Regional VP, Midwest of Allianz Trade, discusses how companies increase their business line of credit with trade credit insurance. Here's how Greg explains it:

“One of the benefits of our policy is that our policyholders and customers can actually obtain access to more capital by utilizing our product with their lender.

“Basically how it works is when companies get advances on any receivables that are aging, typically what you’ll see here in the United States – with domestic banks in particular – maybe [businesses will] get an 80% advance on that receivable. But then there’s a lot of restrictive language.

“If there’s a foreign receivable, it’s kicked out of the borrowing base. If it’s more than 60, 70 days old, if it’s a concentration issue, banks don’t like that, it’s too much risk.

“Then the banks find out the receivable is insured by credit insurance with Allianz Trade, and it minimizes their risk significantly.

“So now the bank is happy because they can extend more credit to their customer, our customer is extremely happy because now they have additional capital that they can now leverage for their own business, and all the while they’re also getting all the other benefits of a credit insurance policy.

“It’s truly a situation where everybody wins. “

With better credit risk data at their fingertips, businesses are typically able to improve credit control and quickly offer trading partners more competitive credit terms, helping boost sales and cash flow without sacrificing peace of mind.
Executive improving financing from her tablet

Trade credit insurance helps companies reduce their reliance on bad debt reserves so they can reallocate the capital. 

Credit insurance is also a cost-effective replacement for expensive bank guarantees and letters of credit.

Doug Konop

With its largest asset, its accounts receivable, secured with Allianz Trade’ AA-rating, Specialty Forest Products’ bank was willing to extend an increased line of credit, giving Specialty the cash flow it needed to expand its inventory and sales.

“We pay our mills in 10 days but don’t see payment from our customer for another 30-60 days,” explained Doug Konop, CFO of Specialty Forest Products. “We need to have a line of credit with our bank in order to make this business work. Having trade credit insurance allows us to have an entirely different – and much more comfortable – conversation with our financial partner. ”

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