201504 CM April

OPINION
HOLDING A GRUDGE
Andy Moylan, Managing Director, EFCIS Trade credit insurance brokers, winners of a CICM
British Credit Award, looks at how credit insurance can move from a grudge purchase to a
business builder.
AS an industry we have not been
proactive in assisting insured
clients in drawing their attention to
the many tangible and measured
benefits of their policy. Understandably
a good proportion of credit managers
and finance directors look upon credit
insurance as a grudge purchase.
Yet a well-managed policy will deliver
a measurable return that may justify the
premium paid. But, it’s the responsibility of
a specialist trade credit broker to work in
partnership with their clients, helping each
one realise the many business specific
benefits of trade credit insurance. Yet the
default position of Trade credit insurance
has been to sell on fear.
Whilst cover can provide comfort
because it will protect your business from
the effects of an insured bad debt, credit
insurance offers so much more than the
blindingly obvious. Not least it protects
your largest company asset; your sales
ledger.
So, what are the compelling benefits
of trade credit insurance and how can
they help a credit manager in managing
and supporting their many challenging
everyday risk decisions to support growth?
Additional resource
Credit managers are faced with making
difficult risk decisions. They’re regularly
under pressure from sales departments
to agree credit lines to support business
growth. But the information they need to
support these decisions is often limited or
outdated, especially so for export sales.
A company with credit insurance
benefits from an additional debtor risk
resource; these credit limits are assessed
by an experienced risk underwriter who
has the most up-to-date financial and
trading information available. Simply
relying on financial information that reflects
a trading position of a company at a
point in time (which typically may be 18
months old) may be insufficient to justify
large credit lines and so the sale might
be lost. A company will benefit from
current payment performance information
(as required by their policy terms and
conditions) or up-to-date management
information. This crucial information could
make the difference in justifying the credit
line required.
Credit insurance should provide cover
on customers with a measured degree
of risk and uncertainty and not simply
cover clients that are a safe bet (referred
to by underwriters as ‘blue chip’). It’s
astonishing but true that increasing sales
(with the comfort of credit insurance
cover) by £1,000,000 on net margins of 10
percent generates an additional £100,000
in profit. The ability to secure a swift and
accurate credit limit decision can make the
difference in winning the business or not.
On a monthly basis monitor the current
sales ledger balance with the endorsed
approved credit limit. Ask your broker
what support is on offer to ensure that the
current insured ledger is covered up to an
acceptable level; one that provides ledger
protection and a platform for considered
growth. Don’t unintentionally opt for the
alternative situation where you simply
hope that, in the event of a bad debt,
cover is in place.
Generating funding
Invoice financing has become a major
source of funding for many growing
companies in the UK. But the level
of available funding can be restricted
because of the low level of endorsed
credit limits. A well-managed trade credit
insurance policy provides working capital
to support the growth of the business.
A company that increases the level of
insured debt by only £250,000 could
potentially draw down an additional
£200,000 of working capital to support
growth or even pay for supplies in
advance for a discount. This additional
level of working capital could provide the
headroom needed to increase sales and
ultimately profit.
The more reassurance you can give
your invoice finance provider in respect
24 April 2015 www.cicm.com The recognised standard in credit management