Trade Credit Insurance for the Logistics Industry

Trade Credit insurance protects business cash flow against losses caused by their customers’ insolvency or default on payment.

We help protect Forwarders accounts receivable from losses due to credit risks

There is no doubt that the heighten competition for Freight Forwarders to keep their customers and attract new ones has led many to offer upfront payments for disbursements such as Duties and Goods & Services Tax on behalf of their customers. Competition pressure has intensified with customers demanding and obtaining credit terms for these disbursements, which results in a substantial percentage of Forwarder’s capital tied up as accounts receivable.

Although there is no way to completely prepare for or predict the future, non-payment of invoices remains one of the biggest ongoing fears for Forwarders and keeps their Chief Financial Officers and Finance Managers up at night. Fortunately (or unfortunately) Forwarders aren’t alone, with 80% of ultra-long overdue invoices that are greater than 120 days considered to be uncollectable*. Forwarders can usually manage some smaller bad debts via a bad debt reserve or self-insurance, however, that does not replace monies lost. What would be the impact if a couple of Forwarder’s largest customers suddenly become insolvent? It could be catastrophic.

That’s why it is so important for Forwarders to forge quality relationships with their customers. Equally important is to maintain robust credit risk management and assessment processes, including detailed and periodic credit checks and above all, never make assumptions about a customer’s continuing credit worthiness. When a Forwarder’s cash-flow is contingent on their customers paying on time, Forwarders need to know who they can afford to extend credit to and who they should be asking for alternative payment methods. Further, regular monitoring of customers credit dependability is vitally important. By obtaining timely and accurate credit decisions, Forwarders can capitalise on the right opportunities at the right time.

Remember, bad debts do not only impact the immediate cashflow factors, but simply come off your bottom-line profits. For example, at a 10% profit margin, a $75,000 bad debt would require another $750,000 in sales just to recoup that loss!

Protect and improve Forwarders cash flow

This is why Trade Credit Insurance is an important part of an overall credit risk mitigation strategy. Trade Credit Insurance protects accounts receivable from losses due to credit risks such as insolvency or protracted default, putting cash back into Forwarders hands following loss from an insured event.

Further, Trade Credit Insurance can be used as an effective financial management tool that can:

Protect and improve “cash-flow”,
Enhance balance sheet and reduce the cost of finance,
Increase sales and profitability,
Improve and strengthen credit control and management procedures.

This provides Forwarders with piece of mind to be able to safely trade with their existing customers and expand into new markets knowing that either increased or additional lines of credit they offer are likely to be insured.

Coface Credit Opinions offer for Freight & Trade Alliance Members

To help make trading safer for Forwarders, Logical Insurance Brokers & Freight & Trade Alliance have partnered with specialist Trade Credit insurer, Coface, to offer a unique Credit Opinion service. This service draws on Coface’s global expertise and in-depth analysis and evaluation process undertaken when assessing customer credit worthiness for their policyholders. Whilst there can never be any guarantees, this service can provide an additional layer of ongoing confidence about a potential or existing customer’s financial position.

The Credit Opinion service is reasonably priced and simple and easy to use. Forwarders only pay for those customers requiring an opinion and the monitoring service means Forwarders will be notified when their customer’s risk profile changes.

If you would like to find out more about this service, please complete the “Partner with Logical” form below.

*Source: Coface Global Debt Collection

Credit Risk Controls

Here is a quick checklist which may assist you protect your business against the risk of bad debts:

Credit assessment – when establishing a new credit account, ensure you have effective in depth procedures when onboarding new customers, including the correct entity to be invoiced. Also include detailed and periodic credit checks and above all, never make assumptions about a customer’s continuing credit worthiness;
Standard Trading terms and Conditions – Forwarder’s STCs should be up to date and allow for recovery of outstanding monies when they become overdue. STCs usually contain Lien clauses to assist Forwarders detain and sell customers’ goods/cargo in satisfaction of unpaid accounts;
Overdue collections – when an account becomes overdue, ensure you have robust processes in place to initiate collection recoveries;
Security – ensure Forwarder’s STCs include Personal Property Securities Act (PPSA) clauses.

Outsourcing these activities is often an affordable and effective option for time poor businesses.

Partner with Logical

Simply complete the form below and a member of our team will get in touch within 24 hours.