Financing Accounts Receivable
Finance Your Receivables
Trade credit insurance can help make domestic and foreign accounts receivable more acceptable to lenders by protecting against covered buyer nonpayment.
Discuss Your SituationUnlock Working Capital by Insuring Your Receivables
Banks commonly use accounts receivable as collateral for revolving lines of credit, but their borrowing-base formulas may exclude or limit certain receivables, such as foreign accounts, large customer concentrations or older receivables. Trade credit insurance can reduce the credit risk associated with insured receivables, which may make them more acceptable to lenders.
Each lender determines borrowing-base eligibility, advance rates, insurance requirements, pricing and other loan terms.
Financing Foreign Accounts Receivable
Many banks exclude or limit foreign accounts receivable from their borrowing base due to the credit risk associated with foreign buyers. Trade credit insurance from an acceptable insurer can protect eligible foreign receivables against covered buyer nonpayment. If the insurance and policy structure meet the bank's requirements, the lender may agree to include the insured foreign receivables in the borrowing base.
Illustrative Example — Foreign Receivables
A U.S. exporter has:
Without Foreign A/R Included
With Insured Foreign A/R
Examples are illustrative only. Each lender determines borrowing-base eligibility, advance rates, concentration limits, pricing, covenants and insurance requirements.
Trade Credit Insurance and Domestic Lines of Credit
Trade credit insurance can provide multiple benefits for a domestic line of credit — not just help with customer concentration. By reducing the lender's credit risk on insured receivables, trade credit insurance may support higher advance rates, lower pricing and expanded borrowing capacity, subject to the lender's approval and requirements.
Higher Advance Rates
Insured receivables may support a higher advance rate. Lenders may advance up to about 90% in some cases, depending on the insurer and borrower.
Reduced Concentration Penalties
Lenders may raise or waive concentration caps for insured, approved buyers.
Expanded Borrowing Capacity
Previously restricted or excluded receivables may become eligible, increasing borrowing availability.
Potentially Better Loan Terms
Reduced receivable credit risk may support lower interest margins or less restrictive covenants, subject to lender approval.
Aged or Extended-Term Receivables
Some lenders may accept insured receivables they otherwise restrict because of aging or longer payment terms, depending on the policy and loan agreement.
Illustrative Example A — Higher Advance Rate
A company has $10 million of eligible, insured domestic accounts receivable.
Illustrative Example B — Customer Concentration
A company has $10 million of otherwise eligible accounts receivable.
If the lender accepts trade credit insurance on this customer and gives borrowing-base credit for the excess concentration, at an 80% advance rate:
Examples are illustrative only. Each lender determines borrowing-base eligibility, advance rates, concentration limits, pricing, covenants and insurance requirements.
Important Considerations
- The insurer must approve sufficient credit limits on the buyers.
- The lender must accept the insurer, policy and coverage structure.
- The lender may require assignment of policy proceeds or a loss-payee arrangement as appropriate.
- Policy conditions, exclusions, waiting periods and deductibles matter.
- The premium cost should be weighed against increased borrowing availability, potential financing savings and protection from bad-debt loss.
Trade credit insurance does not automatically make a receivable eligible collateral. The lender always determines borrowing-base eligibility, advance rates, concentration limits, and acceptable insurance arrangements.
Try the Borrowing-Base Impact Calculator →How JMR Works With You and Your Bank
- 1Understand your lender's concerns and financing objectives.
- 2Review your receivables and borrowing-base limitations.
- 3Identify appropriate trade credit insurance markets (private insurers and, for eligible exports, EXIM where appropriate).
- 4Structure coverage to address the lender's requirements.
- 5Coordinate documentation with your company, insurer and lender.
- 6Provide ongoing policy and credit-limit support.
Could Credit Insurance Improve Your Borrowing Base?
Whether you are an exporter, a domestic business or a lender, JMR can help you evaluate how trade credit insurance may support your financing objectives, including foreign receivables, customer concentrations and overall borrowing capacity.
Discuss Your Situation