ACCORDING TO PYMTS Dec 2019 The awkward balancing act of trade credits – do the work, ship the merchandise on good faith, hope to get paid sooner rather than later – is a $3.1 trillion nail-biter in the U.S. alone. Small businesses experience this anxiety acutely: Research indicates that over 56 percent of SMBs simply live with liquidity problems. Smaller, newer businesses are hit harder, with over 65 percent reporting chronic cash shortages.
This state of affairs causes business owners to meet expenses (including payroll) with interest-laden credit card debt and other kinds of short-term funding that erodes margins. There’s an explanation as to why SMBs, in particular, are in this jam, and how they can free up the cash locked in their trade credit invoices.
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NOTE In the Msg From Founder- we want to note a CORRECTION in concept between trade credit finance and trade credit insurance.
A trade credit is an agreement or understanding between agents engaged in business with each other that allows the exchange of goods and services without any immediate exchange of money. Trade credit extended to a customer by a firm appears as accounts receivable and trade credit extended to a firm by its suppliers appears as accounts payable. Trade credit can also be thought of as a form of short-term debt that doesn’t have any interest associated with it.
In the message the goal was to highlight Trade Credit Insurance, Trade credit insurance (TCI) is a method for protecting a business against its commercial customers’ inability to pay for products or services, whether because of bankruptcy, insolvency, or political upheaval in countries where the trade partner operates.1
TCI—sometimes referred to as accounts receivable insurance, debtor insurance, or export credit insurance—therefore helps businesses protect their capital and stabilize cash flows. It can also help them secure better financing terms from banks, which have the confidence that their customers’ accounts receivable will be repaid.
