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Euler hermes presentation

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David Newstead Explains Accounts Receivable Insurance

David Newstead Explains Accounts Receivable Insurance


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  • 1. Fraser Valley CharteredAccountants Association Credit Insurance Overview February 7, 2013 David Newstead Assistant RVP,Canada
  • 2. Euler Hermes at a glance  119 years of experience  AA- S&P Rating and an A+ rating from AM Best  Headquartered in Baltimore, MD. Canadian HQ- Toronto, ON  50 local offices nationwide and in 52 countries  Staff of 6,000 associates worldwide provides localized sales and servicing  Backed by blue-chip ownership through the Allianz Group  Guarantee over $120 Billion in sales annually. Over $1 Trillion globally.  Provide coverage in over 200 foreign markets  Industry based experts in risk underwriting  Customized analysis and support to our clients  International Risk Database monitors & grades over 45 million companies worldwideDate | © Copyright Euler Hermes Presentation title 2
  • 3. What is Credit Insurance?Date | © Copyright Euler Hermes Presentation title 3
  • 4. Loss Protection and Prevention Protection against unexpected bad debt losses due to insolvency, slow pay or political risk.  Insolvency can be a CCAA, Ch. 7, 11, 13, bulk sale, receivership, general meeting of creditors, etc.  Everything else falls into the slow pay “bucket”.  Slow pay claims must be filed within 90 days from due date or 180 days from ship date, whichever is longer.  We act as collection company with the guarantee…if we don’t collect we pay.  If we collect debt then the business is assessed a collection fee however, deductible or coinsurance do not apply.Date | © Copyright Euler Hermes Presentation title 4
  • 5. Export Coverage  Provides an organization with increased sales, cost savings and protection from unexpected losses - Eliminates… Need for Letters of Credit − Covers shipments for the year − Open terms allows the buyer to keep their working capital line of credit available for other uses - Competitive Edge … Offering open terms − The difference in winning business or retaining from competition? - Borrow… Export Receivables are no longer non-performing assets − Recognized collateral that can open up opportunities for better financing - Political Risk… Export protection − Inability to obtain hard currency − Changes in Import/Export regulations − Foreign government non-paymentDate | © Copyright Euler Hermes Presentation title 5
  • 6. Bad Debt Management/Catastrophic Loss ProtectionDate | © Copyright Euler Hermes Presentation title 6
  • 7. Accounts Receivable: The Only Major Asset Left Uninsured What assets are insurable? What assets are insured?  There is a greater chance that a business will experience a loss within their accounts receivable than any other asset. Where does the A/R fall on a client’s Balance Sheet?  Typically represents 40% of a company’s assets  Most vulnerable to unexpected losses  Highly likely to be affected by business cycles  Provides cash flow for the business  Only under-leveraged asset Few companies can effectively compete without extending credit to their buyers What amount of loss would seriously impact a company’s financial stability or annual profit? How many accounts have credit extended over that limit?Date | © Copyright Euler Hermes Presentation title 7
  • 8. “My Accounts Are As Good as Gold.” Really? ??? Bankruptcies are inevitable Have happened to big named companies Failures come from increasingly unpredictable sources  Management Deficiencies  Complex Financial Restructuring  Legal Maneuvering (Ch. 11)  Product Liability  Regulatory Changes  Political & Global Economic Change Will your business be part of the Cash Flow Domino?  Euler Hermes monitors beyond the primary debtorDate | © Copyright Euler Hermes Presentation title 8
  • 9. Effects Of A Bad Debt Loss The table shows the amount of sales required to recover from a bad debt loss. A $250,000 debt @ 6% profit margin requires you to generate an additional $4,166,667 to just to BREAK EVEN. Profit Margin $25,000 $50,000 $100,000 $250,000 $500,000 $1,000,000 2% $1,250,000 $2,500,000 $5,000,000 $12,500,000 $25,000,000 $50,000,000 4% $625,000 $1,250,000 $2,500,000 $6,250,000 $12,500,000 $25,000,000 6% $416,667 $833,333 $1,666,667 $4,166,667 $8,333,333 $16,666,667 8% $312,500 $625,000 $1,250,000 $3,125,000 $6,250,000 $12,500,000 10% $250,000 $500,000 $1,000,000 $2,500,000 $5,000,000 $10,000,000 15% $166,667 $333,333 $666,667 $1,666,667 $3,333,333 $6,666,667Date | © Copyright Euler Hermes Presentation title 9
  • 10. Loss Avoidance/ Credit EnhancementDate | © Copyright Euler Hermes Presentation title 10
  • 11. Risk Underwriting Approach  A combination of… - Financial statement analysis - Political/Country risk - Macroeconomic trends- World Class Economists on staff - Industry information - Reporting of past dues from our policy holders Better Information= Better Decisions!Date | © Copyright Euler Hermes Presentation title 11
  • 12. Buyer Coverage Types Named Buyer Discretionary Buyer >$100k Credit Limit>$100k Credit Limit Qualified by Request and limits credit management reviewed by Euler using 1 criterion. Risk Underwriters Either: in local jurisdiction 2 trades and 1 bank ref.Regularly monitored by:-Financial Statement analysis Industry report (ie D&B)-Policy Holder Past due reporting Financial Statements-Alerts from monitoring agencies Internal trade experienceDate | © Copyright Euler Hermes Presentation title 12
  • 13. Named Buyer Grading, Monitoring and Credit Request Criteria Euler Hermes Risk Rating Generic Monitoring Description Frequency 1 Exceptional 2 Excellent Annually 3 Strong 4 Good 5 Average Annually and by alert 6 Watch Bi- Annually 7 Substandard Quarterly 8 High Risk Monthly 9 Uninsurable 10 Failed As neededDate | © Copyright Euler Hermes Presentation title 13
  • 14. EOLIS Online Database 45 Million Companies Monitored and graded in our worldwide risk database 2,000 debtors Processed on-line each day 17,000 Credit Limit Requests Received each day 81% of Credit Limit Requests Processed in less than 48 hours Credit Limit Request Turnaround Time Domestic: 1 day (95%) Exports: 4-7 days (95%)Date | © Copyright Euler Hermes Presentation title 14
  • 15. Sales Growth/ExpansionDate | © Copyright Euler Hermes Presentation title 15
  • 16. Sales Expansion Operating Facts Company: $40 Million in Sales Average A/R: $6 Million Gross Margin: 10% Account Turns Per Year: 8 Objective Company has a few large/new accounts that offer additional selling opportunities but reached their “comfort” exposure level. Interested in a credit risk protection program that would allow to safely increase sales. Profit/Payout (on just ONE approved account) "Comfort" Exposure $750,000 Approved Coverage $1,000,000 Sales Opportunity $250,000 By Account Turns 8 Incremental Annual Revenue $2,000,000 By Gross margin percent 10% Increased Gross Profit $200,000Date | © Copyright Euler Hermes Presentation title 16
  • 17. Access to CapitalDate | © Copyright Euler Hermes Presentation title 17
  • 18. Bank Financing- Access to Untapped Capital  $65,250,000 in Additional Working Capital using underutilized assets. * 30 day DSODate | © Copyright Euler Hermes Presentation title 18
  • 19. Thank you for your attentionDate | © Copyright Euler Hermes Presentation title 19

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