The lack of receivables insurance coverage (also called credit insurance) represents the biggest unidentified and uninsured exposure facing Canadian businesses today.
In much the same way mortgage insurance protects 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.
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 negotiate bigger loans, by using this insurance as collateral, or establish higher lines of credit for their customers, making it easier for those 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. Purchasing a receivables insurance policy gains you access to the global resources of trade credit insurance companies.
Despite these benefits, fewer than 10,000 of Canada’s 1.1 million employer businesses currently use receivables insurance as part of their financial planning, leaving tens of thousands of companies unduly exposed—often simply because they are unaware of the advantages of protecting what is often their most valuable asset.
Another part of our new association’s challenge is to erase a misunderstanding among Canada’s CEOs, CFOs, credit and risk managers, and bank managers about the role of receivables insurance, with many believing it can only be used to protect export sales.
This is untrue, and in a volatile economic climate that can adversely affect Canadian companies, unwise as well.
RIAC is working closely with Canadian property and casualty brokers and their banking industry partners to better protect business across Canada and help them grow locally and globally.
We believe this collaboration can expand the $200 million credit insurance market to our goal of $350 million within five years.
It’s an achievable goal that is a platform for Canadian brokers to forge new relationships with their clients—and to benefit Canadian business at large.
The Receivables Insurance Association of Canada, RIAC, a new member-driven organization, was launched this summer to create awareness and a deeper understanding about the business advantages of receivables insurance.
RIAC is backed by a “Group of Seven” underwriters, including EDC and three founding brokers. receivablesinsurancecanada.com