Joel McGinley, TranStrategy Partners Brian Ashley, Euler Hermes Ted Hansen, Chartwell Capital Solutions Business Credit Insurance  Assets  Liabilities  Equity / Capital  Net Working Capital   What assets are insurable and insured?  Where does your A/R fall on your Balance Sheet?  What amount of loss would seriously impact your company‟s financial stability or annual profit? How many accounts have credit extended over that amount? ◦ Odds as to where you will experience a loss is with the A/R. ◦ Typically represents 40% of a company‟s assets ◦ Most Vulnerable to unexpected losses ◦ More likely affected by business cycles ◦ Provides cash flow for the business ◦ Only asset “under-leveraged”  Catastrophic Risk Protection ◦ Prevents Disrupting Losses to one of the company‟s largest, unprotected assets ◦ Reduction of Risk of Key Account concentration levels ◦ Caps Exposure to Bad Debt Loss  General Loss Prevention ◦ Support for your Credit Risk Evaluation through third party evaluations of customers, prospects, industries and countries ◦ Provides a structure and discipline for credit decision making ◦ Gain leverage over problem accounts by using underwriter‟s clout and resources   Sales Expansion  Expand Sales into Riskier or New Markets  Grow with Existing Accounts  Enhance a Customer Relationship Bank Financing  Enhance Lending Relationship...  High Concentration with Key Accounts  „Cross-Aging Language‟ on A/R  Borrowing against Export Receivables  More capital at reduced rates, taking full advantage of A/R  Reduction in Bad Debt Reserves  Frees up Working Capital  Converts non-taxable deductible provisions into a fully tax deductible insurance premium Cash  A/R   Hard Assets  A/R ◦ Know your customers  Credit worthiness  Credit Application / Credit Checks  Only grant credit to those worthy  Accept Credit Cards or Prepayments for those with poor credit  Customer‟s A/P processing requirements  Paperwork required or just BOL / PO #  Do they accept invoice by email or EDI  A/R (continued) ◦ ◦ ◦ ◦ Quick pay discounts Accept Electronic Payments – ACH or Wire Transfer Aging management and collection Measure days invoices outstanding  Days Sales = Annual Sales / 365 days Approximately $27,000 for a $10M broker  Days Sales Outstanding (DSO) = A/R balance / Days Sales A $10M broker with $1M in A/R would have a DSO of 36.5 days ($1,000,000/$10,000,000*365)  Hard Assets ◦ Computers and copiers ◦ Facilities  A/P ◦ Be consistent and pay when you say you will ◦ Use of electronic payments (ACH & Wire Transfer) ◦ Quick Pay with discounts  Next day, 2 days, 15 days  T-Checks ◦ Measure average days to pay = A/P balance /Annual Cost of Goods Sold * 365 A $10M broker has a $750,000 A/P balance pays 30 days on average (750,000 / 9,000,000 *365)  Banks watch closely when determining borrowing capacity and like to see historical growth  Current Assets less cash – Current Liabilities less short term debt ◦ For most brokers this is A/R and Prepaid Expense less A/P and Accrual.  Credit Approval Process ◦ Credit Checks ◦ Credit Limits ◦ Communication  Aggressive Management of A/R ◦ One freight bill is worth 20 times it‟s value ◦ DSO at under 40 days ◦ Understand the spread between DSO and DPO      Know Your Customers Understand Your Cash Needs Aggressive Management of your #1 Asset – A/R Use Measurements to Manage Stay Upside if you Want a Good Exit  Joel McGinley, TranStrategy Partners [email protected]  Brian Ashley, Euler Hermes [email protected]  Ted Hansen, Chartwell Capital Solutions [email protected]