Risk & Business Magazine JGS Insurance Magazine Fall 2018 | Page 5

TRADE CREDIT PROTECTION
Why Is Trade Credit
Protection Critical?
BY: GWENYTH P. LUU, CLCS
DIRECTOR - COMMERCIAL LINES
JGS INSURANCE
E
very business owner knows that
they need to have insurance
policies in place to cover their
risks and liabilities. Some even
have policies covering situations
in which their supply lines or logistical
capabilities become compromised, with
the intent of keeping the business running.
What happens, however, if your biggest
customer defaults on payments and your
company suddenly loses a huge chunk of
revenue? That is a question that many
CEOs and business owners, unfortunately,
do not ask themselves until it is too late.
Those that do ask that question often don’t
have a good answer. So what can be done
to avoid that situation?
Trade Credit Insurance exists precisely for
those situations. These policies are better
known to compa nies who do business
internationally or are located outside of
the United States, but such policies are
becoming more and more popular here as
well. Credit insurance allows companies to
protect their domestic and international
accounts receivable against unexpected
bad debt loss due to insolvency, protracted
payment (i.e., slow payment) from
customers, and political risk.
These policies cover either all or the
majority of your receivables, so you
won’t need to get a separate policy for
each customer. Claims can be filed when
customers become insolvent or after a
preestablished amount of time (in the event
of a slow payment).
THERE ARE MANY ADVANTAGES TO
TRADE CREDIT INSURANCE:
• Safeguard one of your largest assets—
protects against a devastating loss to
your accounts receivables
• Support your sales goals—expand
into new and unfamiliar markets
much more comfortably by extending
large lines of credit than you might
normally offer
• Strengthen your credit risk
management controls—credit
insurance allows you to cap exposure
to bad debt losses
LET’S CONSIDER A COUPLE OF
SCENARIOS WHICH MAKE EVIDENT
THE VALUE OF THIS TYPE OF POLICY:
1.
2.
A manufacturing company seeks
to expand its sales with customers
but isn’t comfortable offering higher
internal credit limits. This company
could turn to a Trade Credit Policy in
order to cover its customers and, thus,
increase credit limits, grow revenues,
and deliver more profits.
A wholesale chemical and materials
company secured its receivables with
Trade Credit Insurance, which allowed
them to provide more transparency to
its lenders and, thus, gained the ability
to improve their lending terms .
UTILIZING ECONOMIC
STUDIES AND
INFORMATIONAL DATABASES,
YOU CAN DETERMINE HOW
CREDITWORTHY YOUR
CUSTOMERS MAY BE BEFORE
YOU EXTEND TO THEM.
THAT WILL PREEMPTIVELY
ALLEVIATE SOME OF YOUR
RISK, ALLOWING THE POLICY
ITSELF TO TAKE CARE OF
ANYTHING THAT SLIPS
THROUGH THE CRACKS.
With coverage in place, you can conduct
business as usual with the added benefit of
value credit analysis and collection services.
Don’t let a client default put your company
at risk. Take proactive action and find out
whether your company could benefit from
a trade credit policy today. +
As an insurance expert who focuses on
the non-profit and food processing sectors,
Gwenyth Luu has seen many unusual
exposures and claims. That’s why she knows
firsthand that it’s imperative for businesses to
work with an industry-specialized insurance
partner. Gwenyth has earned a certificate of
completion in the HACCP System.
Gwenyth and her family reside in New Jersey.
When Gwenyth isn’t working, she enjoys
CrossFit training, reading and cooking.
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