Receivables insurance association formed

Less than 1% of Canadian companies currently utilize receivables insurance as part of their financial planning – or less than 10,000 of Canada’s 1.1 million employer businesses. That compares to market penetration rates of up to 30% in European countries with long trading traditions, and 15% in the U.S.

But this is set to change with the creation of a new member-driven organization called the Receivables Insurance Association of Canada.

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Backed by a “Group of Seven” underwriters and three founding brokers that want to invite fellow brokers to grow a $200 million market to a goal of $350 million within five years, the new association claims that the lack of receivables insurance coverage represents the biggest unidentified and uninsured exposure facing Canadian businesses today. It further states that the under-insured state of corporate receivables in Canada introduces undue risk on working capital loans, inhibits the amount that can be loaned, and also forces higher interest rates on business clients — artificially restricting sales growth.

“Part of our challenge is to erase a misunderstanding among Canada’s CEOs, CFOs, Credit Managers and Enterprise Risk Managers about the role of receivables insurance, with many believing it can only be used to protect export sales,” said Mark Attley, president of the Receivables Association of Canada. “This is untrue, and in an economic climate that is prone to unforeseen events, unwise as well,” he said.

In much the same way mortgage insurance is designed to protect the bank in the event of a foreclosure, receivables insurance protects businesses from buyers – in Canada or abroad – that are unable to fulfill their invoice payment obligations.

Such unforeseen trade disruptions can include buyer insolvency, protracted default – a failure to meet obligations on time due to inadequate cash flow, or political disruptions that lead to a loss on current receivables.

Read: Help clients prepare for weather emergencies Receivables insurance policies pay out if an adverse economic or political event occurs that affects a business’s ability to be paid for goods or services in transit or already provided.

Receivables insurance can also help businesses establish higher lines of credit for their buyers, making it easier for buyers to purchase more products or services. For example, receivables insurance may allow a company to sell on 60-day terms instead of 30-day terms, or ship more products while they are in seasonal demand.

For smaller businesses, receivables insurance allows them to get valuable advice and country intelligence that aids credit management. Receivables insurers have expertise in every market in the world, and specialize in assessing corporate credit risk in all manner of economic and political climates. Purchasing a receivables insurance policy gains access to the global resources residing in trade credit insurance companies.

Read: P&C insurers must harness new data: E&Y

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.