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As more Canadian companies expand their operations across Canada and into other counties, Euler Hermes wants to ensure businesses are able to “trade with confidence,” says David Lousky, Euler Hermes’ vice-president and head of direct sales for Canada. (Photo by Shutterstock)

Canada | Finance

Trade credit insurance can help firms save money, expand faster and take on more risk

Unpaid invoices can derail your business. Here’s how Euler Hermes can help you get the money you’re owed.

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has been in business for 84 years, but the company is still one bad client away from running into potential financial uncertainty.

The Sherbrooke, Que.-based metals business—which creates thousands of high-end parts for the sub-contractors who build pulp and paper mills, among other things—is often working on multi-million-dollar projects. If, for some reason, a client doesn’t pay, the firm wouldn’t be able to pay its own staff and suppliers. “We’re bidding on a contract for $10-million right now that could represent about 10 per cent of our sales,” says Edward Henderson, a CPA and the company’s chief financial officer. “We can’t afford to not get paid.”

The company has only run into this issue a couple of times before, many years ago and with much smaller contracts, but there’s always a chance someone won’t pay. A pulp and paper mill could go bankrupt, or a sub-contractor could disappear. “That would cause a lot of problems,” he says. “Get a couple like that and you’re talking no more business.”

While Henderson’s company may be dealing with large receivables, a delinquent client is a concern for any business. If someone doesn’t pay, it can be difficult to get that money. While some companies will work with collections agencies and others will put liens on a business’ property, many others will end up losing out on a big cheque.

To alleviate this issue, ISE Metal began working with , a global credit insurance company that has a large Canadian presence. It offers trade credit insurance, which insures a company’s receivables for up to 90 cents on the dollar. If a company’s client skips out on a $100,000 contract, Euler Hermes will pay the policy holder $90,000. The policy holder would then use those funds to pay their staff and suppliers. “We want to bring you back to where you were before you signed that contract,” says David Lousky, Euler Hermes’ vice-president and head of direct sales for Canada. “It’ll be like it never happened.”

While this kind of insurance can make sense for companies of all sizes—though most of Euler Hermes’ clients do at least $5-million in sales a year—it’s especially important for businesses with concentration risk, where one client makes up a large portion of sales, or in complex supply chains where a single hiccup could derail everyone else’s operations, says Lousky.

Obtaining trade credit insurance is fairly easy, he adds. Euler Hermes looks at the policy holder’s clients and tells them which receivables they’ll insure. It monitors 80 million businesses, so it knows the ones that have a history of not paying. While companies can purchase insurance on individual companies, typically they insure all of their receivables. Like with other kinds of insurance, the policy holder pays a monthly fee, which allows them to make a claim if one of their clients doesn’t pay an invoice.

An online portal gives policy holders access to their accounts, where they can make a claim or receive coverage on new clients. Euler Hermes’ sophisticated algorithms, coupled with its big data tools, will give a Euler grade on a business—similar to a credit score—which indicates whether the policy holder’s receivables for a specific client can be insured. “It’s simple,” says Lousky. “In about 30 seconds, a policy holder can ask for coverage on most companies around the world and get a prompt response.”

There’s another advantage to having this kind of insurance: It puts the policy holder’s bank at ease. Henderson says that because ISE Metals is insuring its receivables, its bank has increased its line of credit and has given it better terms. “They’re seeing that there’s less risk to them,” he says.

As more Canadian companies expand their operations across Canada and into other counties, Euler Hermes wants to ensure businesses are able to “trade with confidence,” says Lousky. If a Canadian company wants to ship its goods to a new supplier in Florida and wants to make sure that business is on the up and up, it can ask Euler Hermes if it’s a buyer they should do business with. Knowing a buyer’s payment history, and having that credit protection if something goes awry, helps businesses take on more risk and expand faster, says Lousky.

Having trade credit insurance has saved ISE Metals a lot of money: they’d have to spend at least $75,000 a year to hire someone to go after unpaid invoices and ensure new clients can pay; their annual premiums to Euler Hermes are much less. It also gives Henderson peace of mind. “We don’t want to do credit reviews ourselves on one-time orders,” he says. “We just let Euler take care of it.”