Liability Insurance Contributing Columnist


The Bakery Methods of Accounts Receivable: To Collect...Take a Number

January 24, 2020

Jen Pino-Gallagher
Director of Food & Agribusiness Practice
M3 Insurance

The recent announcements that two of the largest dairy processors in the US filed for bankruptcy are causing industry insiders to worry about the ripple effect that the bankruptcies will have on the supply chain.

A supplier to a company that goes into receivership can suddenly feel like they are waiting in line for a doughnut at the corner bakery as they navigate the accounts receivable process. The supplier is essentially asked to “take a number”, and is at the mercy of the appointed receiver and the liquidation process.

In today’s uncertain dairy climate, a proactive approach to managing supply chain financial risk is the best approach.

Proactivity begins with your board of directors. One of the cornerstone duties of the board is financial oversight, which, in addition to reviewing internal financial reports, includes analyzing industry trends and financial outlooks to ensure the organization has adequate cash flows and financial resources to weather anticipated storms.

During such times, proactive boards create audit committees of individuals with greater financial expertise and skill to handle the situation.

There are two insurance-specific tools that a dairy processor can turn to in order to relieve the financial impact and the worry caused by a supply chain upheaval: credit insurance and Directors and Officers coverage.

Credit Insurance – What it is and what it can do for your business
Simply put, credit insurance is a financial tool used to cover a company’s commercial accounts receivables should the buyer become insolvent. Sometimes referred to as “bad-debt” coverage, the average policy will reimburse the insured 85 percent-95 percent of their invoice amount.

Businesses with credit insurance can expand into new markets and new customer bases by minimizing concerns of non-payment.

A major benefit to purchasing credit insurance is that you, the insured, has an insurance company on your side that continuously monitors the financial health of your buyers and alerts you to any changes.

Options include coverage for the non-reimbursement of advance payments made to suppliers, non-payment due to political events, disputed debts, and even natural disasters.

However, a savvy purchaser of credit insurance can find many ways to leverage the policy to not only protect the bottom line, but grow the top line. How so? Businesses with credit insurance can expand into new markets and new customer bases by minimizing concerns of non-payment. Companies looking to grow international sales can even utilize trade credit insurance in non-domestic markets. By offering flexible credit terms, a company can become the supplier of choice – gaining a competitive edge.

Finally, with the accounts receivables covered by insurance, a company may have leverage to access working capital from a lender.

Directors and Officers Liability Coverage
Should my organization consider purchasing director’s and officer liability policy at a time of anticipated financial stress in the industry? The simple answer is yes. If your organization hasn’t purchased a D&O policy in the past, it’s possible - and wise - to pursue one now.

D&O coverage is the primary defender of management decisions including those of your creditor committee.

Lenders like to see companies purchase both credit insurance and Director’s and Officer’s liability insurance as proactive tools in managing financial risks.

In a time of upheaval for the dairy industry, adding your insurance broker to your financial risk management team, along with your banker and accountant, is a smart move for your organization. By taking this proactive approach, you’ll have access to the right financial risk management tools for your unique operation, when you need them.



Jen Pino-Gallagher

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