Reverse Credit Insurance

Companies may find that there is limited or no credit capacity in the insurance markets on their own business, either because sundry suppliers have fully claimed it and/or because insurance companies do not have adequate information. This can create problems for buyers/importers if their important, larger vendors require credit insurance to justify the extension of open terms.

Buyers/importers frequently take a reverse approach to credit insurance in an effort to create, control, and direct market capacity on their own business. These companies develop non-disclosure agreements with the insurers and routinely share financial and other privileged information, just as they would with banks, investors, accountants, etc.

IRC is experienced in working with executive financial management and purchasing teams to develop credit insurance-based strategies for increasing terms and credit limits from vendors. Once the scope of the project is established, IRC will package salient information for presentation to the markets, develop relationships with underwriters, and attempt to create the desired amount of insurance capacity. IRC will then educate vendors on the protection afforded by the insurance as part of the client’s negotiation to improve repayment terms. Upon successful negotiation, IRC will coordinate the issuance of single-debtor credit insurance policies to suppliers and provide on-going service and support to them.

Insurance premiums are typically funded by the buyer/importer either in-advance or through incremental increases in purchase costs. Improved days payable outstanding and cash flow justify the cost for the buyer/importer. The supplier benefits because it obtains credit protection on its accounts receivable and from the possibility of increased revenues and improved cash flow by financing the insured receivable. See related topic: Finance and Related Consulting.