Increasing the Level of Receivables Finance

Working capital is essential to the process of growing and expanding your company. Banks are providing a range of solutions, including receivables finance and supplier finance, to meet the demands of businesses that are growth-oriented.

To improve their services, banks that offer trade credit insurance, like Atradius, Coface, and Allianz Trade, are teaming up with these companies to allow their banks to take on higher-risk debtors on a receivables financing program.

Trade credit insurance, according to Atradius, has the potential to revolutionize the industry by compensating the receivable undertaker for a significant portion of the credit—up to 90% of the payment.

Global supply chains as a whole anticipate more trade credit insurance agreements. According to data from fintech solution provider Trade Finance Global, in 2022 the trade credit insurance market covered losses of €3.2 trillion (US$3.47 trillion), up 20% from the year before, and repaid claims valued at €2.5 billion (US$2.71 billion), up 66% from 2021.

“When doing business with companies with credit insurance coverage, banks can be more comfortable lending against those clients’ accounts receivables,” says Allianz Trade, an international insurance provider covering trade credit insurance. “This, in turn, creates more opportunities for banks to lend more money to more clients while still managing their own risks effectively.”

Not only do insured receivables ease banks’ concerns, but they also strengthen their bonds with clients who want to lower their days’ sales outstanding and enable programs to be expanded because the risk is reduced.

Willis Towers Watson, a risk management and consulting firm, states that “trade credit insurers also work to remain up to date on your customers’ financial health by monitoring financial statements and often information not in the public domain, such as business plans, projections, and management accounts, as well as wider industry data from other companies supplying the same customers.”

Trade credit insurance is helpful, but its coverage comes at a price, which may go up if the receivable is too risky to cover. Swiss Re projects that in 2024, the insurance premium will increase to US$14.8 billion due to the increased default risk associated with a downturn in the economy. Remember that coverage rarely reaches 100% and that trade credit insurers have the right to end the agreement if there is a disagreement over the outstanding payment balance.