capture the tangible advantages of trade credit …...expand sales! the benefits of trade credit...
TRANSCRIPT
Capture the Tangible Advantages of Trade Credit Insurance
Expand sales!
The benefits of Trade Credit Insurance are substantial — and quantifiable. With some simple calculations, you can spotlight the tangible financial benefits that come from a smartly crafted program. The examples below show how benefits accrue in three key areas for a typical U.S. based company.
Benefit #1:
Sales (and Profits) to Existing Customers
With Trade Credit Insurance in place, ABC company can potentially increase sales (and profits) by increasing credit limits to major customers. See the below example of how the increased account receivables, multiplied by an average of number of annual receivable “turns,” translates to potentially greater sales and profits for this company:
Customer/Country/Category Current Credit Limit Desired Credit Limit Difference
Customer A $2,000,000 $4,000,000 $2,000,000
Customer B $ 500,000 $ 600,000 $ 100,000
Customer C $ 250,000 $ 500,000 $ 250,000
Potential Increase Limits/ARAverage Annual AR TurnsPotential Increased Sales:Gross MarginPotential Gross Profit from Inc. Credit Cap.
$2,350,000 4$9,400,000 10%$940,000
The Same Results — Just Another Way To Look At It
With Trade Credit Insurance in place, a company can potentially increase its overall sales, generating substantial additional gross profit.
ABC Company
Annual sales $200,000,000
Potential % Increased sales with credit insurance 6.7%
Potential increased sales $13,400,000
Gross margin 10.0%
Potential Gross profit from increased sales $1,340,000
Value of Trade Credit Insurance
When a large portion of a company’s sales are concentrated among few customers, Trade Credit Insurance can mitigate the concentration risk.
Benefit #2:
Open New Markets
Trade Credit also supports your safe expansion into new countries and markets. It can allow you to increase sales in existing markets by moving customers from letters of credit to open account terms. That potentially means more sales for your company and lower-cost of trade finance for your customer; A win-win solution!
CALCULATION FORMULAPotential Increased Limitsx Average Annual AR Turns= Potential Increased Salesx Gross Margin (%)= Increased Gross Profit
Benefit #3:
More Attractive Bank Financing
With Trade Credit Insurance in place, a company can potentially attain more attractive bank financing and increase the working capital available from its same pool of receivables. For example:
Value of Trade Credit Insurance
Customer/Country/Category Current Credit Limit Desired Credit Limit Difference
Country A – From Letter of Credit to Open Account
$ 500,000 $ 1, 000,000 $ 500,000
Country B – New Market $ 0 $ 500,000 $ 500,000
Potential Increase Limits/ARAverage Annual AR TurnsPotential Increased Sales:Gross MarginPotential Gross Profit from Inc. Credit Cap.
$1,000,000 4$4,000,000 10%$400,000
Domestic A/R $40,000,000
Foreign A/R $10,000,000
Current availability to borrow on domestic A/R $24,000,000 60% Current Domestic Advance Rate
Current availability to borrow on foreign A/R $0 0% Current Foreign Advance Rate
Total Availability without credit insurance: $24,000,000
Availability with credit insurance for domestic A/R $36,000,000 90% Insurance Domestic Advance Rate
Availability with credit insurance for foreign A/R $ 7,000,000 70% Insurance Foreign Advance Rate
Total Availability with credit insurance: $43,000,000
Total increased borrowing base: $19,000,000 Availability increases to $43 million from $24 million.
American International Group, Inc. (AIG) is a leading international insurance organization serving customers in more than 130 countries. AIG companies serve commercial, institutional, and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. AIG common stock is listed on the New York Stock Exchange and the Tokyo Stock Exchange.
Additional information about AIG can be found at www.aig.com | YouTube: www.youtube.com/aig | Twitter: @AIGinsurance | LinkedIn: www.linkedin.com/company/aig
AIG is the marketing name for the worldwide property-casualty, life and retirement, and general insurance operations of American International Group, Inc. For additional information, please visit our website at www.aig.com. All products and services are written or provided by subsidiaries or affiliates of American International Group, Inc. Products or services may not be available in all countries, and coverage is subject to actual policy language. Non-insurance products and services may be provided by independent third parties. Certain property-casualty coverages may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds, and insureds are therefore not protected by such funds.
©American International Group, Inc. All rights reserved. 08/14 SP0398B
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