In the fuel world, it’s not uncommon to have a line of credit secured by receivables. While lines of credit can help with cash flow and allow you to take advantage of opportunities, they often have restrictions that prevent businesses from maximizing their effectiveness. Most banks will offer 80% advance rates, exclude receivables that are concentrated over 25%, and kick out foreign receivables from the borrowing base. Especially when the price of fuel increases, many companies could utilize more borrowing power. Rising fuel prices also put pressure on their credit line from their supplier, limiting the amount of fuel they can purchase. If this is a situation you’re dealing with, credit insurance is a tool that could help fix this problem.
Credit insurance is an insurance policy that guarantees your receivables get paid. While this type of insurance has many sales advantages, bank financing is a big reason to purchase. Fuel companies can purchase credit insurance and name their bank as the beneficiary, resulting in a payment direct to the bank should a loss occur. This gives tremendous comfort to the bank, allowing it to increase advance rates (often to 90%), eliminate concentrations, and include foreign receivables back into the borrowing base. By removing this risk from the bank, it will often become more competitive with interest rates. Combined, this improved financing will more than pay for the cost of the credit insurance. Also, it is a great tool to leverage with your suppliers to get higher credit limits, as you’re virtually guaranteeing to them that you’re going to pay your bill.
Credit Insurance
Credit insurance is a cost-effective sales tool that allows you to insure your receivables so you can safely sell more to your existing customers, go after new customers that may have been a credit risk in the past, and expand into new markets that you originally perceived as too risky. Credit insurance offers a cost-effective solution for safe and profitable growth:
- Grow sales safely, domestically and abroad, to new and existing customers
- Protect your business from risk of non-payments
- Make better and faster credit decisions
- Ease tensions between sales and credit
- Avoid personal guarantees
- Borrow better from the bank by eliminating concentrations and obtain higher advances with lower rates
- Eliminate letters of credit and replace them with a tax-deductible insurance provision
- Provide you leverage to collect from your customers
Contact us to see how credit insurance can help grow your business while protecting you from losses. If you are already using credit insurance, we can help you see how your policy stacks up to the rest of the market. There could be ways we could work with your carrier to reduce your premium or enhance the policy. Better yet, there is no fee to work with us. We work with all credit insurers and allow for the best rates and maximum coverage.