Managing Credit Risk In Commercial Accounts Receivable

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MANAGING CREDIT RISK INCOMMERCIAL ACCOUNTSRECEIVABLE The Role of Trade Credit Insurance

GeneralTypes blesShort Term1 – 360 DaysMedium Term1 – 5 YearsLong Term5 Years

WHAT ARE THERISKS TOACCOUNTSRECEIVABLE? Loss of Documents / Data Fraud Credit Risks:oCommercial Insolvency (Bankruptcy) Protracted DefaultoPolitical Foreign A/R

HOWBUSINESSES CANREDUCE ORELIMINATECREDIT RISKSCASH ONLYPRO’sNo Credit RiskImmediate Cash FlowCON’sBarrier to BusinessCompetitive DisadvantagePro’s and Con’s

HOWBUSINESSES CANREDUCE ORELIMINATECREDIT RISKSIMPLEMENT / UPGRADECREDIT PROCESSPRO’sImproves Credit Quality of BuyersEstablishes Discipline Within theOrganizationReduces Credit LossesCON’sPro’s and Con’sMay Require Additional PersonnelDoes Not Eliminate Credit Losses

HOWBUSINESSES CANREDUCE ORELIMINATECREDIT RISKSSELL ACCOUNTSRECEIVABLE(Factoring / Securitizations)PRO’sEliminates Credit Risk (if non-recourse)Immediate Cash FlowCON’sPro’s and Con’sCostlyLoss of control

HOWBUSINESSES CANREDUCE ORELIMINATECREDIT RISKSTHIRD PARTY PUT OPTIONSPRO’sSometimes available on high riskdebtorsContract terms can start at 3 monthsCON’sPro’s and Con’sGenerally restricted to public companiesInsolvency onlyNo tail beyond contractCostly

HOWBUSINESSES CANREDUCE ORELIMINATECREDIT RISKSTRADE CREDIT INSURANCEPRO’sFlexible structuresIndemnity Credit intelligence &monitoringCollection and legal servicesAssignableCoverage attaches at time of ShipmentCON’sPro’s and Con’sRequires adherence to contract terms

How Credit Insurance WorksCompanyExample:ALendingCredit Insurance PolicyGuaranteesRepayment fromCompany BIf Company B doesn’tpay. Insurance Policypays Company A(Optional)Lender named asbeneficiary to supportloan to Company A onexport or domesticreceivablesBeneficiary AgreementCompany A sellsGoods and/or Servicesto Company B.Company BCredit Insurance CompanyInsurer Qualifies Company BMonitors Changes in RiskDebt Collection

WHAT TRADECREDITINSURANCECOVERSCommercial Risks Insolvency (Bankruptcy) Protracted DefaultPolitical Risks (Export) Inconvertibility of Funds Government Intervention Act of War / Civil Violence

WHAT TRADECREDITINSURANCEDOES NOTCOVER Fraud Loss of documents / data Disputes Market to Market Risks Currency Fluctuations Commodity PricingFluctuations

Trade tingInsurer underwritesbuyer creditsCancellableNon -CancellableExcess of LossUnderwritingInsurer underwritescredit process ofpolicy holder

Whole TurnoverTrade CreditInsurancePolicyStructuresDomestic and ExportExport OnlyDomestic OnlyTargeted CoverageSingle BuyerKey AccountNamed OnlyDatum Line

Pricing: Sales or Coverage BasedTrade CreditInsurancePricingVariables Whole Turnover VS SelectiveRisks Insured Sales Volume Industry Conditions Policyholder’s historical baddebt levels Domestic VS ForeignReceivables Buyer Risk Ratings / Cr Limits Current Economic Conditions Terms of Sale / SpecialCoverages

Trade CreditInsuranceFinancialReportingImpact Facilitates Reductions in BadDebt Reserves Insurance Premiums are TaxDeductible Establish Triggers andProcedures for RecognizingBad Debt

HOWBUSINESSESUTILIZE TRADECREDITINSURANCERISK TRANSFER Catastrophic Loss Protection Protect Cash Flow Large asset protection

HOWBUSINESSESUTILIZE TRADECREDITINSURANCEBORROWING ENHANCEMENT Improved collateral value of A/R Lender Beneficiary Borrow against foreign A/R

HOWBUSINESSESUTILIZE TRADECREDITINSURANCESALES EXPANSION Increase credit capacity for bothnew and existing customers Grow export sales Expand markets

CURRENTMARKETTRENDS COVID-19 Insurance Premiums Coverages Risk Sharing Bright Spots

TRADE CREDITINSURANCESUMMARY Does not replace sound creditpractices Supports internal credit process Completes total riskmanagement strategy

A Leader in Trade Credit InsuranceMARK D. ISERNTrade Credit Insurance Agency LLCAccounts Receivable Credit Insurance BrokerOlathe, KSCell: (913) 485-3160misern@tciallc.comWWW.TCIALLC.COM

Coverage attaches at time of Shipment CON's Pro's and Con's Requires adherence to contract terms . How Credit Insurance Works Company A . Trade Credit Insurance Agency LLC Accounts Receivable Credit Insurance Broker Olathe, KS Cell: (913) 485-3160 misern@tciallc.com WWW.TCIALLC.COM A Leader in Trade Credit Insurance.

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Executive Summary 6 . Company Overview 7 . Basel III Overview 7 . Capital Requirements and Management 12 . Capital Summary 14 . Credit Risk 16 . Overview 16 . Wholesale Credit Risk 18 . Retail Credit Risk 20 . Counterparty Credit Risk 22 . Securitization Credit Risk 26 . Equity Credit Risk 30 . Operational Risk 33 . Market Risk 35 .

required to have the Credit Card Credit permission to access the Apply Credit Card Credit. The patient transactions that appear in the Credit Card Credit page are limited to charges with a credit card payment. This can be any credit card payment type, not just Auto CC. To apply a credit card credit: 1.

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What is Credit Building? And what it's not CREDIT BUILDING The act of making on-time regular payments on a financial product such as an installment loan or a credit card that is reported by the creditor to the major credit bureaus. CREDIT BUILDING Credit repair CREDIT BUILDING Credit remediation/debt management alone CREDIT BUILDING .

Correlation with market risk Non-diversifiable credit risk including contagion Downgrade risk ¾Market spreads can't be ignored Reinsurance spread might be higher Default/recovery could be higher or lower Liquidity low Downgrade risk higher Credit Risk Correlations Insurance risk Insurance business Equity risk, other investment risk

to credit risk. However, credit risk might decrease the value of derivatives with negative value as well since this value might turn to be positive in the future. 5.2 General principles of credit risk modelling In the credit risk modelling, one of the most crucial issues is the de nition of a credit