JLT Trade Credit

What would happen if one of your largest debtors failed?

Statistics show that, on average, debtors represent over 40% of a company’s current assets. Therefore the need to protect the balance sheet and shareholders’ funds against the failure of debtors is of paramount importance.

The risks to your cash flow, working capital and profits in the event of the failure of a major customer can be significant, but a simple tailored credit insurance solution is available.

Trade Credit Insurance provides protection against:

• Insolvency
• Protracted default
• Political risks

In addition Trade Credit Insurance can also assist with:

Security for finance

Policy can be assigned to a bank or financial institution providing an opportunity for additional secured finance.

Expansion

You can grow your business with confidence knowing that debts are underwritten.

Peace of mind

The most disciplined credit management cannot guarantee the prevention of bad debts.

Protecting profits

The extra sales which are required to offset a loss of $50,000 can be as much as $1,000,000 where pre-tax profit margins are 5%.

Loss	Pre-Tax Profit
$	5%	10%	20%	33.3%
5,000	100,000	50,000	25,000	15,000
10,000	200,000	100,000	50,000	30,000
25,000	500,000	250,000	125,000	75,000
50,000	1,000,000	500,000	250,000	150,000
100,000	2,000,000	1,000,000	500,000	300,000

The scope of cover afforded by a Trade Credit insurance policy is usually between 75%–90% of an insured debt depending on the level of loss retained as uninsured.

Types of Cover

The main types of cover available include:

Whole of Turnover

An agreed premium is applied to the total turnover (excluding cash, government and intercompany sales). This type of policy provides broad protection for all debts subject to an agreed deductible per loss.

Excess of Loss or Catastrophe

Cover is provided for catastrophic losses in excess of an agreed level of aggregated bad debts in a single year.

Major Debtor

Provides protection for key clients whose indebtedness exceeds an agreed figure at the time of the loss or which has aggregated more than the agreed figure in the 12 month period immediately prior to the loss.

Specific Account

Protects against the insolvency of specified accounts only. This type of cover is only available as a Structured Trade Finance solution, with non-cancellable limits for a period of between one and five years.

Structured Trade Finance is used for the financing of high value commodity flows and is structured around the supply chain and commercial terms of customer, usually involving large bilateral strategic relationships.

It is largely used in the commodity sector by producers, processors, trader and industrial end-users and each financing arrangement is tailored to the particular needs of the client. Repayment of Structured Trade Finance transactions is made through the sale/export proceeds of the commodity and can be used to finance short term working capital or long term capital expenditure.

Benefits:

• securing strategic procurement
• diversification of funding
• greater access to finance
• enhanced management of transport costs and/or delivery timeframes
• non-cancellable

Export Credit Risks

An exporter or overseas trader generally requires a far wider range of cover than domestic traders. Some of the areas which can be covered under an Export Trade Credit Insurance policy are:

• Insolvency or protracted default of private buyers
• Non-payment by Government buyers
• Politically motivated contract frustration
• Cancellation of import/export licences
• Imposition of import/export embargoes
• Currency inconvertibility

Overseas Investments

Companies who invest in overseas ventures may need to develop a manufacturing or distribution facility in the country of operation. This can result in an exposure to financial loss in the event of a government intervention by way of:

• Confiscation
• Expropriation
• Nationalisation
• Physical loss or damage to investment (following Confiscation, Expropriation, Nationalisation)
• Inability to repatriate dividends and income from investments due to currency inconvertibility

Contacts

Jardine Lloyd Thompson’s specialist Trade Credit Insurance team are:

Kerin Rathgeber
General Manager – Trade Credit (including WA, QLD and NT inquiries)

Sally Byrne
Manager – Trade Credit, NSW

Jan Gwilym
Manager – Trade Credit, VIC, SA, TAS & NZ

For further information or if you like to receive a quotation, fill out the Trade Credit Questionnaire or contact: