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Bill : Hi, and welcome to soft land central the hub of market entry knowledge and information. So today we’re gonna hop into kind of a really interesting topic that I think a lot of companies that are internationalizing don’t know much about. We’re going to talk about credit insurance. And we’re here with Expert, Jenny Norris from meridian financial. Welcome, Jenny.
Jenny : Hi, Bill. Thank you so much for having me today.
Bill : It’s so great to see you. And so over the last few months, I’ve been learning more and more about credit and insurance and how companies are using it. I think it’s just, it’s a fascinating topic, because it seems like it gives companies a lot more opportunity to expand globally and to help them mitigate some of that risk. But before we hop into how a company might use it for sales or financing enhancement, maybe we should first talk about what it is. And maybe you could talk a little bit about credit insurance and kind of how it works and what specifically it is. So we have that base to kind of build on.
Jenny : Sure. Yeah, I think a lot of folks don’t aren’t familiar with that term. So what is credit insurance? If you think about it, anytime a company is selling a product, and they’re selling that product on open account terms, they’re creating an accounts receivable. So if you think about a company’s balance sheet, they’ve got cash at the very top, and they have accounts receivable, well, those accounts receivable are going to are hopefully going to turn into cash. But they’re also if they’re not paid, they can become a bad debt. So like all the other assets that are on the balance sheet, like your cash or inventory, work in process, those are all insured, there is a way to ensure accounts receivable. So basically, it is non payment insurance. And especially in these days and times with, you know, companies being a little shaky, it’s become a real hot topic. It’s been around for a very, very long time. So it’s not new. But I think more and more companies are starting to understand that they can actually protect themselves after they’ve made that open account sale.
Bill : No, that’s fantastic. So let’s take a scenario. So I’m a, let’s say, I’m a manufacturing company, I, I make those great widgets, and I want to, you know, go from maybe I’m in the US and I want to, you know, I’ve got some new customers in Africa, and I want to be able to send them their first shipment, you know, how, you know, how can I use it to maybe make a larger order? Or to close that sale?
Jenny : Yeah, that’s a great question. So obviously, you’re great at making widgets, and you want to be able to sell those widgets. And and when you’re negotiating the sale, one of the first things that your client is going to ask you for, besides your awesome widgets are the sales terms and, and, you know, think about it from their standpoint, do they want to shoot over 50,000 or 100,000, or $10,000 to you without having that product in hand. So it’s they, they would like to, for you to kind of act as their bank and provide you provide them credit. And that’s a very scary thing from for you sitting here in the US as a as an exporter, to just ship your product without any sort of protection. So it does allow you the ability to compete when you’re selling to your client. I mean, imagine if you go in and say we, you can buy these widgets, but you’re gonna have to pay me cash in advance, you are not very competitive at that point. And they may look at some of your competitors, and that are providing terms and say, we’d rather purchase from there. So it is very much a sales tool and an ability for you to be able to make that sale confidently doesn’t mean that you have to open the floodgates, you may want to say that, you know, this sale, we’re gonna do 50% down 50% after 60 days, and maybe you as you get more comfortable, you can do 100% at 60 day terms, but you’ll be very comfortable and confident in yourself if you have that credit insurance to back you up. Because essentially the credit insurer is telling you go ahead, you can go make that sale. If something happens you can put in a claim.
Bill : That’s, that’s really cool. So is credit insurance available globally? Am I does it allow me again, no matter where I am? Can I identify insurers who would help me mitigate that risk?
Jenny : Yeah, and In fact, you’ve probably you probably know a little bit about credit insurance and didn’t even realize it, Lloyd’s of London credit insurance. So if you think about it, a lot of companies, especially overseas, are very used to having and working with credit insurance, especially in Europe where credit insurance basically originated, you’ve got a lot of companies in a lot of different countries, a lot of different legal systems. So they kind of assume that you already have credit insurance if you’re purchasing from them. So if you’re here from the United States, and you’re not using that tool, that’s, that’s almost a little bit different. So, you know, going into it going into a sale, many times your buyers overseas may already assume that you have credit insurance. So if you don’t have it, you may be at a disadvantage in walking in and trying to get cash in advance. So it is something that is more available here in the United States probably over the last 20 years. So it’s fairly new. But but it’s it’s a product that’s been around for a very long time.
Bill : Well, it is, in terms of credit insurance, it sounds like it actually makes the sale better for both the buyer and the seller, where it gives the buyer the comfort and confidence that they can receive the product and not having necessarily paid yet. And to have the seller so that they have assurance that they’re going to get paid.
Jenny : Here’s an example of where it really works well is if you’re selling and you’ve got a distributor, obviously, you want to make sure that your distributor is as you can make those sales that they’re successful as possible, those distributors overseas may want to have some stock of your product. And if you can give them the term so that they can build up some stocks so that they themselves can sell on an ad hoc basis, they’re going to do better. So rather than buying onesies, twosies of things from here, you know, here and there, if they can place an order for, I don’t know, $50,000 worth of your widgets, and maybe only place that order two or three times a year versus a bunch of little small orders, it’s going to help so so the supplies side of things, it really helps out, you want to make sure your distributor is strong and successful. If you can give them some terms that’s going to help them and their cash flow and be able to better move your product.
Bill : Cool. Well, it sounds like this really can add quite a bit to the sales toolkit in terms of helping you close more sales, which obviously is kind of the name of the game. So on the financing side, how does credit insurance work as a financing tool?
Jenny : Yeah, that’s it’s a great question. Because we get that a lot. folks come to us and just assume that they’ll get the credit insurance, and then we’ll hand them a check. Not quite how it works. But the credit insurance does add a lot of value to a company that has it. So for example, if you’re a manufacturer, and you’re looking for a line of credit, you go to the bank, and the bank has an equation, they figure out how much they’re going to lend to you. That equation is made up of generally two things, how much inventory you have, and how much accounts receivable that you have. So the bank will say, we’re going to lend to you 50% of your inventory on hand, and maybe 70% of your receivables. So as a company, you say this is great, I’ll sell more. I’ll increase my receivables and I’ll be able to borrow more. But then the bank says well, wait a minute, let me take a look at those receivables. Oh, they’re International. That really scares me. You’re great at making widgets. How good are you at collecting money overseas? So the banks then starts to say those receivables aren’t as strong as I thought. If the company comes back and says, Hey, I have credit insurance on those receivables, those receivables to Mexico and Africa and Asia are even stronger than my receivables to Texas and California and Illinois. So it is a way that a bank will actually increase how much they may lend to a company because they have the credit insurance in place versus not. So it is a tool that a lot of lenders use. Another things that lenders pull back on are if there’s concentrated sales, let’s say you only have one large customer and they’re overseas. The bank sees that they get worried about concentrated sales too. So this is a great mitigation, get the credit insurance in place, assign it to the bank, the bank feels a lot more comfortable lending. So it’s a great tool to increase the borrowings as well.
Bill : Very nice. So from a cost standpoint, is it is credit insurance calculated? Sort of as a percentage of the invoice? How is it? What’s the formula there? How does it generally work,
Jenny : I’m gonna give you two answers to that. Generally it is based on sales. So it’s usually a percent less than a percent of sales, you’re usually looking at somewhere between maybe 20, and 40, or 50 cents per every $100 in sales. So we’re not typically looking at just one invoice, we’re looking at what the company is doing as a whole, because what we want to do is we want to mitigate the risks. So we want to include as much of the receivables as we can. There is a government backed program ExIm Bank, and it’s a phenomenal program for companies that are manufacturing in the US and shipping from the US. They do it more as a pay as you go and invoice by invoice. So in that sense, yes, we can break it down a little bit more but but generally, we’re looking at, you know, 25 cents, or 50 cents for every $100 in sales.
Bill : So very, it’s a lot less than taking credit card payments, that’s an example,
Jenny : less than taking credit card payments. And some companies will say that they’re running credit reports. Well, rather than spend money on credit report, which the credit report may not be accurate, you can spend just about the same amount and get the actual coverage on that receivable if something were to go wrong. So
Bill : Wow, this is this has just been fantastic. What a great update in terms of a new tool or not necessarily a new tool, but a tool to help both increase sales, and also close on the funding that companies need. So if somebody is looking for help with credit and insurance, so can you tell us a little bit more about meridian financial, and how they might get a hold of you guys? And we’ll put information on how to get a hold of you in the in the description area below as well.
Jenny : Yeah, I think you know, it’s as easy as just giving us a call and helping us understand what you’re selling, who you’re selling to, how many customers you’re selling, what kinds of credit limits, and then what our job is, we’re a credit insurance broker. So we go to the entire market. And we take a look and see what would probably be the best fit, not necessarily just the best costs, but the best coverages as well. We’ll tell you the advantages and disadvantages. And the most important thing about credit insurance is that credit insurance policy is the answer key. So as long as you’re following the policy, and that’s what we help you do, you’re going to be covered, should you have a claim going down the road.
Bill : That’s great. And how long it’s maybe you can tell us a little bit more about meridian financial is how long have y’all been in business? And I know you’re here on the East Coast, but you have, you’re based on the west coast, you could maybe tell a little bit more about the company.
Jenny : Yeah, meridian has been around for over 25 years. I’ve known him for many years, even when I was a banker, myself, we’re headquartered in LA, we are owned by a British credit insurance broker. And we have offices in Connecticut, I manage the East Coast, Ohio, and then most of our folks are in our la office. So we are licensed in all states in the United States. So wherever you’re calling from, we’d be able to help you no problem. That’s fantastic.
Bill : Well, good. This has been great, I think a really good update on credit insurance for our audience. Is there anything else that we should close with just to make sure people are kept up to date?
Jenny : Yeah, I would just say kind of like car insurance, and you want to make sure that you have it in place before something goes wrong. So it may be when you’re kind of least expecting it something can happen. So get it when you don’t need it. And then it’s there. It allows you to sleep at night, but then be used as a sales tool and help you ramp up sales as well. So earlier this
Bill : Yeah, I had a one of my favorite teachers in school was a finance professor who said yeah, always look for money when you don’t need it. Because obviously when you do need it, you’re not very attractive. So it seemed like really seemed like really good advice. Yeah. Brilliant. Well, well, thank you so much for taking the time today. Jenny. It was great to hear more about credit and insurance and certainly wish you luck in keeping going strong this year.
Jenny : Thank you very much for having us. Appreciate it.
Bill : My pleasure