4 Reasons Why Companies Use Trade Credit Insurance

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In my last Order to Cash post, I talked about setting buyer limits.  Instituting a credit management discipline in the order to cash space would not be complete without considering trade credit insurance. There are four primary reasons insurance can be purchased provide incremental sales, provide default risk protection if buyers do not pay act as a financing tool to increase the percentage of receivables eligible act as a cost reduction tool to reduce bad debt reserves. The reasons for purchasing trade credit insurance are not always so black-and-white. Many companies use the coverage for more than one reason: receivables financing; […]

10 Questions to Ask when Setting Your Customer Credit Limits

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Order to Cash functions are part of a large group of activities that support a company’s sales – which include front end, transactional and credit-related activities.  I tend to think of them in the following way: Like any good lender, companies must assess their buyers for the ability to pay and also provide an internal credit line for them to order goods.   Credit limits to your customers allow them to order goods up until the limit and is the maximum amount you are willing to risk. Companies use different criteria to determine a new credit limit. The hardest part is […]

China Causing Banks Trade Finance Shops Nightmares

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As commodity prices increase in volatility, banks are getting much more involved in technical cases where buyers in China using Letters of Credit use the discrepancy management process to get out of paying for goods or ask for price reductions because an “i” wasn’t dotted or a “T” wasn’t crossed.  This is putting a lot of pressure on trade operations and the compliance checkers that are responsible for looking at various exporter documents (eg. packing lists, inspection certificates, insurance documents, etc.) to make sure they comply with the original letter of credit issued. With the IHS Materials Price Index, which […]

TFM Reader Mailbag

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Over the holidays, I tried to figure out how to incorporate reader correspondence into Trade Financing Matters to make the site more interactive and not feel like me speaking from a megaphone with the answers and insights to all what is happening in business finance. I realize that the world is full of many new ventures that are and will change the way we do business – epayments, blockchain, 3D printing to name a few.  I also realize that the readers have insights that I will never have, as we are all a product of our history. Right now, I […]

How Amazon Marketplace Can Solve America’s Gun Problem

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Look, the gun issue in America is one which I normally wouldn’t touch with a ten foot pole, and certainly not on Trade Financing Matters, but I realize we aint gone no where fast with any of the proposed Obama rules and the gun policy debate is not really a debate as it is a protection of rights versus sanity. So Jeff Bezos, if you get this, here is a something you can take straight to the White House and solve a big problem in the U.S. The idea is so simple it’s hard to believe it hasn’t been thought […]

How Marketplace Lenders Can Better Protect Investors

How do the new age of fintech providers that offer platforms for investors and originate credit protect an investor’s investment? When an investor buys into a commingled receivable, they in effect have an interest in a receivable that is a single unit that is in effect owned by multiple entities.  Lets say it defaults.  You own half and I own half via interest conveyed via a promissory note.  You want your half during bankruptcy.   How do you do it?  When banks do this with other receivables they can do it as they are fiduciaries and serve as trustees. One […]

Captive Origination provides Real Advantages to Networks

If you look at vendors selling transactional finance, the ones that have the best chance of success are those that have a captive network - Amazon Business, Basware, Coupa, Nipendo, Tungsten Networks, etc. These networks have done the hard part – provided some payable integration or marketplace service and have captive audience for origination of transactional finance.  Businesses that will win in this turf war are the one that can sign captive origination most effectively. Why? Origination is hugely expensive.  Customer acquisition costs are a huge expense for any lender – alternative business finance, conventional,  or specialty finance.  Banks have […]

Trust Me, I’m a Banker – Post 2

Banks Lack Transparency in defining Trade Finance Defaults    Yesterday, we looked at how two banks differ in their definition of trade finance related write-offs.  Below is the data used to show investors from 2007-2012 historical losses in trade finance. Table Showing Santander Trade Write-Offs 2007-2012 So the first conclusion is that banks differ in their definition of write-offs when it comes to trade finance assets.  Basically, a bank sets its own definition about what is a default.   There is not one defined event.  Is that what happens in the bond world? Is that what happens with credit insurance?  No, […]