By Robert Hawthorne, president, Accounts Receivable Risk Management, LLC

The ongoing economic crisis is driving sales of a product that is new to many agents: trade credit insurance. This product, used extensively overseas but underutilized in the U.S., presents agencies with a great opportunity.

Many agents who have been selling insurance all their lives don't know about credit insurance. It's a way for businesses to protect their accounts receivable (A/R)—in other words, their outstanding invoices. If a customer should default, refuse to pay or somehow be unable to pay, the policyholder is entitled to coverage under the policy.

Since 2007, more than 160,000 U.S. companies have been forced out of business. Virtually all of your customers have been affected by one or more of these bankruptcies. Ironically, most companies insure virtually every aspect of their businesses, yet they leave their accounts receivable—their largest asset—unprotected. In today's economy, a loss due to customer nonpayment of invoices is more common to a typical business than fire or theft. As we know all too well, the consequences can be devastating.

With experiences from the latest recession still fresh, and with new lingering doubts about the state of the global economy, businesses want to protect themselves. For agents, a product that protects their client's cash flow represents a tremendous opportunity. Credit insurance has less than 10 percent market penetration, yet it pertains to 100 percent of your business insurance customers.

Demand for credit insurance is growing. Many of the carriers experienced double-digit growth rates last year. Global premium is about $8 billion and U.S. premium is about $800 million. That figure is expected to triple within 5 years.

Most credit insurance is placed through MGAs who will first and foremost respect the relationship you have with your client, assist in explaining the product and then service the account as needed. Commissions are paid on all new policies and renewals.

In addition to revitalizing a relationship with an existing business insurance client, credit insurance is a great door opener for those customers you were previously unable to see. And since it's only a matter of time before a competitor approaches your existing clients with credit insurance, it might be wise to broach the topic first. You might be surprised how well the product is received.

In addition to protecting a company's accounts receivable, credit insurance also provides other benefits. For example, because their orders are pre-approved, companies that have credit insurance can be more aggressive with the terms they offer their customers, or they can increase the size of orders.

With their accounts receivable insured, companies can improve their own financial profile. Though bank lending remains constrained, banks are more likely to lend to companies with insured A/R, and often lend to them on more favorable terms.

Credit insurance also enables companies to increase the size of their working capital. For example, banks might lend against 90 percent of the receivables, rather than just 80 percent, because they're insured.

Between the increased sales and improved banking relationships, many customers say credit insurance gives them a competitive advantage and may actually be a profit center.

There are other drivers for the interest in credit insurance. Exports by American companies—especially small and medium-sized businesses—have grown by nearly a third in just 3 years. The current European economic crisis, and other regional concerns in Latin America and the Middle East, have made credit insurance a must for companies as they make difficult credit decisions regarding whether or not to ship goods.

There's really no reason not to discuss credit insurance with your clients.

However, when dealing with any new product, agents need an easy way to present it to their clients. All you need to know are the four main benefits of credit insurance:

Protection against a loss due to bankruptcy
Protection against past due receivables
Provides financial information on new and existing customers
Allows companies to negotiate better rates and limits on their bank lines.

The great recession has permanently altered the U.S. economy. Customers face new risks and it's up to their agents to address those risks. Conventional property-casualty policies only cover part of the risk.

Agents also face a risk. Businesses want the kind of protection credit insurance offers. Unless you provide it for them, someone else will.

Special Reports /

4 Business Benefits to Having Credit Insurance

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