In our last blog, we talked about what short term risk is and how short-term single buyer insurance can help to manage this risk. In this blog, we will discuss why you would use a short term single risk insurance product and how you can benefit from using it.
Grow Revenue: From the sellers perspective, one reason a company would consider using single buyer insurance is to create a competitive advantage, enabling them to sell more by offering longer open account terms and/or larger credit limits to their customers.
For example, a company that currently sells on net 60 day terms is growing and feels they can increase their sales if they extend net 120 day terms to their customers.They can use short-term single buyer insurance to manage the risk associated with the extension of longer payment terms and a larger credit limit as sales volumes increase.
Improve Cash Flow: Another reason a seller may use short-term single buyer insurance is financing. Since most lenders will not finance foreign receivables without insurance, the seller needs the insurance for their lender to feel comfortable financing these accounts receivable. An exporter may be able to offer 90 days of open credit to a customer because it is a short enough period that cash flow is not too badly disturbed. If the seller wants to increase the 90 day terms to 180 days, this can cause a cash flow problem and create difficulties for the exporter. Financing of insured accounts receivable may also provide sufficient cash flow for a seller to accept another large contract with an important customer.
Mitigate Increased Risk: A seller may also perceive new risks as market conditions change. For example, if there is a significant change in the political environment in a country, short-term single buyer insurance can help you to manage this risk. The recent elections in Peru have created concerns about a new regulatory environment that could make it harder to get paid. Insurance may be of interest in this scenario even though it was not seen as necessary prior to the election.
About Impello Global
EXIM Banker of the Year 2021 and member of EXIM advisory council, Impello Global is a US based trade finance advisory boutique and trade credit and political risk insurance brokerage. We specialize in trade credit and political risk insurance and provide advisory services to companies and lenders who are looking to expand their trade finance capabilities.
If you are a company or a lender trying to better understand trade credit insurance or EXIM Bank programs and looking for guidance about how these programs can help improve working capital financing, our team would be delighted to learn more about your business and discuss options available to you. Please visit our website at www.impelloglobal.com or contact us directly at firstname.lastname@example.org.