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Fraser Valley Chartered Accountants Association
Credit Insurance Overview
February 7, 2013David Newstead
Assistant RVP,Canada
2Date | © Copyright Euler Hermes Presentation title
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 worldwide
3Date | © Copyright Euler Hermes Presentation title
What is Credit Insurance?
4Date | © Copyright Euler Hermes Presentation title
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.
5Date | © Copyright Euler Hermes Presentation title
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-payment
6Date | © Copyright Euler Hermes Presentation title
Bad Debt Management/Catastrophic Loss
Protection
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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 assetFew companies can effectively compete without extending credit to their buyersWhat amount of loss would seriously
impact a company’s financial stability or annual profit? How many accounts have credit extended over that limit?
8Date | © Copyright Euler Hermes Presentation title
“My Accounts Are As Good as Gold.” Really?
Bankruptcies are inevitableHave 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 debtor
??????
9Date | © Copyright Euler Hermes Presentation title
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 $6,666,667
10Date | © Copyright Euler Hermes Presentation title
Loss Avoidance/ Credit Enhancement
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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!
12Date | © Copyright Euler Hermes Presentation title
Buyer Coverage Types
Named Buyer Discretionary Buyer
>$100k Credit Limit
Regularly monitored by: -Financial Statement analysis-Policy Holder Past due reporting-Alerts from monitoring agencies
>$100k Credit Limit
Request and limits reviewed by Euler Risk Underwritersin local jurisdiction
Qualified by credit management
using 1 criterion.Either:
2 trades and 1 bank ref.
Industry report (ie D&B)
Financial Statements
Internal trade experience
13Date | © Copyright Euler Hermes Presentation title
Named Buyer Grading, Monitoring and Credit Request Criteria
Euler Hermes Risk Rating GenericDescription
MonitoringFrequency
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 needed
14Date | © Copyright Euler Hermes Presentation title
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 RequestsReceived each day
81% of Credit Limit Requests Processed in less than 48 hours
Credit Limit Request Turnaround TimeDomestic: 1 day (95%)
Exports: 4-7 days (95%)
15Date | © Copyright Euler Hermes Presentation title
Sales Growth/Expansion
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Sales Expansion
Operating FactsCompany: $40 Million in Sales Average A/R: $6 Million Gross Margin: 10% Account Turns Per Year: 8
ObjectiveCompany 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 $200,000
17Date | © Copyright Euler Hermes Presentation title
Access to Capital
18Date | © Copyright Euler Hermes Presentation title
Bank Financing- Access to Untapped Capital
$65,250,000 in Additional Working Capital using underutilized assets.
* 30 day DSO
19Date | © Copyright Euler Hermes Presentation title
Thank you for your attention
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