1. Society of Risk Management Consultants
Charleston, SC October 23rd-24th

2. Accounts Receivables: What’s your Risk Management Strategy
Foreign credit risks?
Price increases?
Credit = Top Line growth
Profitably
Protecting the bottom line
How do you effectively manage foreign credit risks?
Do you raise credit limits to absorb price increases or do you pass them on to your customer?
How can Credit help grow the Top Line
Are you in a high margin specialized business or a low margin commodity driven business?
Dealing with an account that’s credit profile is changing?

3. Traditional Credit Practices
Executive Summary
Exposure to potential default has traditionally been managed in one of four ways:
Collateral
Credit Information
Pricing
Run and Hide
Collateral:
Periodic posting of collateral based on perceived risk
Credit Information:
Evaluation of available credit information to make credit decisions on a totally unsecured basis
Price:
Modeling the amount of nsecured credit risk and adjusting the price of the contract by the cost of credit hedges
Run and Hide:
Simply don’t sell the account

4. The Current Trend
As firms seek to preserve financial and operational flexibility, collateral posting or pledging of assets has become less favorable vs. paying derivatives counterparties and Insurers to provide unsecured credit capacity to safely protect/grow the business. (Especially during price fluctuations)

5. Managing the Unexpected

6. Risk Mitigation Products – How and Why They are Used
Abnormal to the Catastrophic
Bird in hand is better than two in the bush
Top Line Growth = Increased Exposure
Are you their “Banker”
Have your Banker “show you the money”
Price Fluctuations
Protection against abnormal or catastrophic bad debt losses
Converts a variable cost – Reserves to a fixed cost – Premium + Client Risk Reten
Allows for increased sales without increased exposure
Allows for open terms or extended terms
Enables a lender to increase advance rate with enhanced collateral
Helps companies manage risk during commodity price fluctuations

7. What A/R Risk Mitigation Products Are
Asset Security
Cash Flow Protection
Political Risk Protection
Risk Management
secures the value of one of your largest assets, accounts receivable
stabilizes cash flow in the event of an unforeseen credit loss
protects against political risks in 160 countries around the world
tools for the financial executive to hedge against both commercial and political risk as well as, improve reserves, manage SOX and create shareholder price protection

8. What Risk Mitigation Products Are Not
A credit management substitute
Routine bad-debt protection
Trade dispute protection

9. Risk Mitigation Products
Seller’s Responsibility
Credit Insurance
Political Risk Products
Put Contracts
Factoring
Outsourcing
Buyer’s Responsibility
LC’s

10. The Only Major Asset Left Unprotected
Most companies protect against every other unpredictable event that has a high potential for loss….property, liability, business interruption….. But have no protection against excessive credit write-offs.

11. Why Protect/Hedge Accounts Receivable?
Accounts receivable typically represent more than 40% of a company’s assets.

12. Why Protect/Hedge Accounts Receivable
The accounts receivable asset is the most vulnerable to unexpected loss and business cycles

13. Loss Analysis Assumptions: $10 million in average outstanding A/R
50, average number of active accounts
$100 million, estimated annual sales
15%, variable gross profit margin
10 basis points for a premium rate
10 average number of receivable turns a year
36.5 DSO (days sales outstanding)
$200,000, average account balance

14. Loss Analysis
Results
$200,000, average total accounts receivable exposure
$400,000, losses on just two average exposures per year
$2,666,667, is what your company will need in additional sales to make up the losses

15. Why Protect/Hedge Accounts Receivable?
Few companies can compete without extending credit.

16. Sales Analysis Assumptions: $10 million in average outstanding A/R
50, average number of active accounts
$100 million, estimated annual sales
15%, variable gross profit margin
10 basis points for a premium rate
10 average number of receivable turns a year
36.5 DSO (days sales outstanding)
$200,000, average account balance

17. Sales Analysis Results $100,000, estimated tax deductible premium
$666,667, amount of incremental sales needed to pay for the cost of credit insurance
$66,667 incremental increase in credit lines across entire portfolio to pay for Credit Insurance
$1,333 in additional increase in credit lines on all 50 accounts to pay for Credit Insurance

18. How much or how little do you want to insure?
Companies like a spread of risk but will consider segment or individual account coverage.
Whole Turnover / Portfolio Coverage
Portfolio Hedging / Catastrophic Excess of Loss
Segment of Accounts Coverage
Individual Account Coverage
Whole Turnover will cover the entire customer base, either being named in the policy or folded under a Discretionary Credit Limit (DCL)
Portfolio Coverage will cover the larger customers, the smaller customers will remain uninsured
Portfolio Hedging will cover receivable based on the assets fair market value, Mark-to-Market
Catastrophic/Excess of Loss is when the insured takes on a larger than normal deductible
Segment of Accounts Coverage could cover a division, product line or some other delineation of customers that justifies only insuring those accounts
Individual Account Coverage would cover only one account. Difficult and expensive to get

19. The Basic Coverage Commercial Risk – Domestic/Export
Buyer Insolvency
Protracted Default
Non Acceptance
Contract Frustration
Political Risk – Export
Inability to obtain hard currency
Changes in Import/Export regulations
Contract frustration due to Act of War
Foreign government non-payment
Commercial and Political Risk can be covered under one policy.

20. How the CI Marketplace Has Evolved
Medium Term
Political Only
Single Debtor
New Entrants
Liberal Discretionary
Non-Cancelable
Credit Insurance
Short Term
Cancelable
Commercial / Political Risk
Whole Turnover
Stable Markets
Limited Discretionary

21. What else has Changed Pricing is much more flexible
Products can be customized to a much higher degree
New entrants into the market have created efficiencies.
Policy language has improved

22. Types of Insurance Coverage
Cancelable Limits – Carrier assists in monitoring accounts and provides warning and guidance in the event there is increased likelihood of default
Non-Cancelable Limits – Carrier will not cancel limits, but the action of the limit could cancel itself.
The Cancellable Limits insurance carriers:
Atradius
Coface
Euler
The Non-Cancelable Limits Carriers
AIG
ACE
Equinox
Ex-Im Bank of the United States
FCIA
HCC
7) QBE
8) XL

23. Things To Think About Is your company looking to grow sales?
Have you introduced any new product lines?
Are you selling Internationally?
Do you use Receivables as part of your borrowing base collateral?
Have you had bad debt losses?
Do you feel sales are being lost because of restrictive credit limits?
Do you need more resources in your Credit Department? Do you have a Credit Department?

24. One Source Products Credit Insurance Put Contracts
Political Risk insurance
Outsourcing
Collections
Factoring

25. Benefits of Dealing with One Source
Unique Sales Approach
Local Sales and Service
Provider Interaction (bringing experts to the table)
Relationship Levels within Providers
Wide Array of Specialties Within Team
International Network Strategic Alliances
One Source will do a full cost/benefit analysis for customers and help obtain confidential information on debtors
One Source has offices in or near most major metropolitan centers in North America
One Source is the number one or number two broker with all major credit insurance carriers
One Source team come from credit and banking backgrounds with the average tenure in the credit insurance business being over 20 years.
One Source has arrangements with other Credit Insurance brokers around the world to help manage multinational policies

26. One Source Risk Management and Funding
Contact:
Eric Voegtle
One Source Risk Management and Funding
ext. 7068
Cell: