Enhancing Corporate Lending Strategies: Trade Credit Insurance

Written by Sarah Zhang, CFA. Published July 17, 2023.

The world of banking and finance is vast, with many moving parts that create a complex yet synchronized mechanism. As a former corporate banker and now a specialty insurance broker, I have gained unique insights into the overlapping realms of finance and insurance.

In this article, I'll shed light on leveraging trade credit insurance which can effortlessly benefit bankers and their clients on a multitude of objectives.

1. What is Trade Credit Insurance?

Trade credit insurance, also known as accounts receivable insurance, provides protection for the balance of money that is owed to your company for goods delivered or services rendered but not yet paid for by your domestic or international buyers.

2. How can bankers leverage this insurance policy?

A. Enhanced Creditworthiness:

When businesses insure their receivables, it acts as a stamp of enhanced creditworthiness. For bankers, the quality of the receivables (collateral) will be significantly upgraded and this will have a positive impact when assessing a company's risk profile.

B. Access to capital and improved liquidity:

With trade credit insurance, additional capital can be accessed via marginable current assets without the lender requiring additional collateral or guarantees. This provides quicker access to capital and will improve the company’s liquidity position.

C. Expanding financing options:

Insurance on receivables can open up opportunities for work-in-progress, contract and holdback financing, which would significantly improve a business’ operating cash flow cycle.

As a former banker, I have utilized this strategy to deliver custom and out of the box financing, which gave the lender comfort to lend and elevated my reputation as a unique banker.

3. The advantage in managing counterparty risks

When doing business internationally, companies often encounter counterparty risks due to geopolitical events, economic downturns in the buyer's country, or regulatory changes. Trade and receivable insurance acts as a safety net against these unpredictable scenarios.

From a banker’s perspective, this further reduces factors contributing to loan default risk and strengthens the client-banker relationship.

4. Structuring loan facilities with specialty insurance

With the current high interest rate environment and uncertain economic conditions, ensuring financial stability and cash flow protection is extremely crucial for businesses and lenders.

The bridge between banking and specialty insurance is not just theoretical but highly practical. As our global economy grows more intricate and businesses increasingly intermingle across borders, understanding and leveraging the power of specialty insurance becomes essential for bankers.

By integrating insights from both worlds, bankers can create more tailored financing solutions, be better collateralized in their lending environment, and ultimately contribute to a more robust global trade ecosystem for Canadian businesses.

Key takeaways: Enhancing corporate lending strategies with Trade Credit Insurance

By utilizing specialty insurance policies in collaboration with TradeBrokers, you can integrate advanced risk mitigation tools in your loan book, increase your interest income, and fortify collateral strength. This will help you work seamlessly with your credit department.

In collaboration with our partners, such as Intact, EDC, Allianz-Trade, Coface, Atradius, and others, we can assist your clients in sourcing the right policy to maximize their access to capital, protect their balance sheet, and be more competitive.

Reach out to us today to uncover how our unique expertise can drive growth and stability for both your institution and the businesses you serve.