leveraging the same base of assets. There are several ways you can
use credit insurance to enhance availability, and we’ll look at them
Improved Advance Rates
First, one of the most common key benefits of credit insurance is the
positive effect it can have on advance rates. Since credit insurance
programs can be written around advance rates, and typically indemnify a client or their lender beneficiary up to 90 cents on the dollar, you
may find that you can increase your advance rates without increasing
your exposure. For example, if you currently lend at 80 cents on the
dollar and implement a credit insurance program with 90% indemnity,
you could, in theory, raise your advance rate to 90 cents on the dollar
and still be fully insured in the event of a credit loss. Even going to 85
cents would free up an additional 5% availability for the client to put
to work in their business. With a credit line of several million dollars,
this can add up to a significant amount of additional capital available
to the client with each turn of their receivables.
Due Default Coverage
A majority of the credit insurance policies issued today include past
due default coverage in addition to insuring against insolvency losses.
Carriers typically provide clients with a window of time in which to
work with a customer before a claim needs to be filed. Because the
carriers do provide this protracted default protection, you may find
it possible to extend the eligible receivables window. This can be of
benefit to clients who have good quality credit risks that just have a
history of paying slow, and where the dollar amounts are of sufficient
size to affect the borrowing base.
In some cases, clients have significant concentrations of exposure
on one or a few key customers. Concentration caps limit the lender’s
exposure to such accounts. By insuring the accounts for the proper credit
limits, you can eliminate these issues. This will allow the client to gain
access to the full potential availability on the total account exposure.
After almost a decade of subpar growth we’re finally starting to see a more meaningful uptick in economic activity. While it’s commonly
assumed that a rising tide will raise all ships, it actually
swamps a lot of boats. More companies are looking for
ways to maximize working capital availability to help
sustain their businesses as they try to take advantage
of new business and increased volume, while dealing
with higher input prices. Cash flow and other capital
resources are quickly becoming more strained than ever.
As an asset-based lender, there has never been a
better time to get up to speed on credit insurance and
how it can benefit both you and your clients. Any risk
management program that helps your client protect the
assets they pledge as security to you is a prudent thing
to put in place. However, credit insurance is more than
the coverage the policy provides.
Using credit insurance to support a receivables-based borrowing arrangement is an excellent way
to help clients expand their working capital by better
The Key to Larger, More Secure
BY VICTOR SANDY
Many lenders think of credit insurance as an added expense, but Global Commercial Credit’s Victor
Sandy outlines the myriad ways borrowers can use it as a financial tool. He discusses the key benefits of
the insurance and provides a sample cost benefit analysis.
One of the most common key benefits of credit insurance is
the positive affect it can have on advance rates. Since credit
insurance programs can be written around advance rates,
and typically indemnify a client or their lender beneficiary up
to 90 cents on the dollar, you may find that you can increase
your advance rates without increasing your exposure.
Global Commercial Credit