You bought the policy. Now it’s time to buy into the policy, but how do you do this? There are several crucial steps in integrating a new trade credit insurance policy to ensure it accomplishes the intended goals for your company. Lets start with the most important one.
Read it! Before you do anything else, read the policy in order to thoroughly understand it. It is common to read a trade credit insurance policy one time through and misunderstand certain terms. In this case, it is helpful to read it again with your broker or account manager so you are able to ask questions and gain an accurate understanding of the policy and all of its intricacies. Let your broker or account manager guide you through the policy to ensure you have a firm grasp on all of the details.
Next, troubleshoot how to successfully combine this new trade credit insurance policy into your existing credit practices. Different policy types require different process flows, so it is important to structure your internal practices around the type of policy. Excess of loss policies should be built around your existing internal credit practices while ground-up policies and their online platforms will likely require you to incorporate new habits into your process's.
It is important to educate all stakeholders in the integration of a new trade credit insurance policy. It is helpful to go through the policy and determine which business units within your company will interact with different aspects of the administration of the policy. Anyone within the company interacting with the covered buyers needs to understand how it functions, how it impacts their role, and how it is used to accomplish the company's objectives. In addition, it is absolutely imperative that anyone interacting with the policy ensures they are in compliance.
While integrating the policy be sure to consider certain administrative aspects of it such as implementing quarterly reporting reminders and ensuring that the sales team does not compromise the ability to maintain coverage. The credit, sales, and finance teams will ideally collaborate to support this new aspect of credit culture.
When incorporating your policy, you will want to think back to why you bought the policy in the first place. The main purpose of the policy, whether it is to grow revenue, improve financing, or mitigate risk, will dictate how to integrate the policy requirements into your business practices.
Grow Revenue
As mentioned in the first blog in our series, trade credit insurance is the only insurance that pays for itself. This unique product allows you to be more aggressive with business expansion without additional risk. In order to grow revenue, you need to expand sales where you see potential growth. Actively engaging with buyers to discuss how to increase their credit limits, offering longer payment terms, helping them to securing better financing are all steps to achieve goals to grow topline revenue.
Improve Financing
If your goal is to improve and expand financing with trade credit insurance, there are a few steps you want to take in order to properly implement the policy. Complete an audit of your current credit facility to assess your borrowing base and where availability is coming from. This will give you a baseline to talk with your lender to increase availability, talk with your banker to increase advance rates, and ultimately, increase access to working capital financing.
Risk Mitigation
Regardless of the main goal for your trade credit insurance policy, risk mitigation will underpin it. Managing risk effectively allows you to grow revenue and improve financing. Before you implement a new policy, you will want to complete a full risk assessment of current credit practices detailing buyers approved for coverage, what is included in the coverage, and how to manage payment terms and collections processes to stay in compliance with the policy.
The bottom line is growing revenue, improving financing, and mitigating risk are circular and work together. You cannot have one without the other two, which is really a win-win-win in our book.
Thanks for reading along with us through our third topic about trade credit insurance. Be sure to keep an eye out for our next article to dive into the alternative types of insurance policies including key account, single-buyer, and medium term.
About Impello Global
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 info@impelloglobal.com.
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