Complementary Component to Credit Insurance Coverage
Instead of letters of credit (L/C), many manufacturers and sellers use trade credit insurances to avoid bad debts on goods or services.
A maximum credit amount is defined for each policyholder based on a rating by the insurance. This insurance coverage limit defines the maximum exposure of open trading volumes. In addition, a credit limit must be applied for each individual customer of the policyholder. This defines the maximum credit line of a business partner.
If one of these limits is reached, either new customers cannot be added to the insurance anymore or the business relationship with existing customers can no longer be expanded. Often this happens towards the end of the year.
Dynamization of the Insurance Coverage by 60% and more
Sellers face key decisions in two situations:
1. Exceeding the credit line for existing customers
The seller’s relationship with its existing customers is important and stabilizes the own company. If the order volume grows with the customer and the company’s own credit line can no longer be increased, then new orders must be rejected, or the supplier bears the risk on its own books. A change in the customer’s payment terms often stands in the way of a long-standing customer relationship.
2. Strain on the insurance line due to the addition of new customers and the development of new markets
Acquiring new customers is crucial for a steady growth course, but it puts a strain on the free credit line. Especially when entering new markets or acquiring customers with poor creditworthiness, the credit insurer’s insurance limit is put under considerable strain. Limits can be restricted, or insurance premiums increased.
Alternative payment methods, such as full prepayment, are often rejected by the buyers. This makes further growth of the seller considerably more difficult.
In both cases, the insurance company will not simply ichange the rating or increase the covered limits. The policyholder must either bear the risk himself or forgo growth.
By integrating Cargodian as needed, the seller can decide for himself whether he wants to burden the insurance framework in full or only in part.
Opening up New Markets
Especially in the new customer segment and when entering new markets, a complementary solution with Cargodian can be an ideal addition to avoid exhausting the available credit limit too quickly during the insurance year. Sellers are given leeway for existing customers and can grow stably.
Cargodian’s business model, in alignment and cooperation with the insurance company, ensures a secure transaction through an event-driven payment by the buyer.
Cargodian enters the trade between buyer and seller as an intermediary and thus has the opportunity to represent the interests of both trading partners: Cargodian is the “Guardian” who controls both the goods and the flow of money.
In cooperation with the insurance company, we achieve a balanced split between controlled and coordinated prepayment and hedging volumes for the policyholder with high acceptance on the buyer side. A buyer can be sure that his money will only reach the seller if defined events in the supply chain have taken place.
A real win-win situation for insurance, customer and Cargodian.