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99% of Canadian employer companies lack receivables insurance

New association created to grow the market

Less than 1% of Canadian companies currently utilize receivables insurance as part of their financial planning – or less than 10,000 of Canada’s 1.1 million employer businesses, according to a new Canadian organization dedicated to growing the market.

The Receivables Insurance Association of Canada, which is backed by a “Group of Seven” underwriters and three founding brokers, wants to grow $200 million market to a goal of $350 million within five years.

Read: Huge market potential for trade credit insurance

The new association claims that the lack of receivables insurance coverage represents the biggest unidentified and uninsured exposure facing Canadian businesses today.

It reports receivables insurance market penetration rates of up to 30% in European countries with long standing traditions, and 15% in the US.

The association stresses that corporate receivables in Canada are vastly under-insured, creating an environment that introduces undue risk on working capital loans, inhibits the amount that can be loaned, and also forces higher interest rates on business clients. The association argues that this environment is artificially restricting sales growth.

“Part of our challenge is to erase a misunderstanding among Canada’s CEOs, CFOs, credit managers and enterprise risk managers about the role of receivables insurance, with many believing it can only be used to protect export sales,” said Mark Attley, president of the Receivables Association of Canada, in a statement.

Read: 4 keys to client retention

Attley spoke Wednesday at the Credit Institute of Canada National Conference in Jasper, Alta. “This is untrue, and in an economic climate that is prone to unforeseen events, unwise as well,” he said.

“In much the same way mortgage insurance is designed to protect 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,” states an Association press release.

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.

Read: Going Global

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 establish higher lines of credit for their buyers, making it easier for 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. Receivables insurers have expertise in every market in the world, and specialize in assessing corporate credit risk in all manner of economic and political climates. Purchasing a receivables insurance policy gains access to the global resources residing in trade credit insurance companies.

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