Receivable Put Contracts and Trade Credit Insurance: A Comparison

Economists often make a joke about how companies weather the cyclical nature of business, “When the tide goes out, we’ll see who’s swimming naked.” The Covid pandemic was more of a tsunami than a mere tide, shuttering or weakening scores of businesses. Many that survived are highly leveraged after grappling with a full year of disruption, which continues to this day.

The tenuous situation has ripple effects because companies that cannot pay their bills financially weaken their trading partners. Manufacturers and wholesalers selling on open account terms often turn to Trade Credit Insurance to protect against this risk of non-payment. However, during periods of elevated risk, the cost of Trade Credit Insurance increases while the willingness of insurers to provide coverage decreases.

Suppliers that still want the benefit of trading with companies where Trade Credit Insurance is not available have another risk-mitigation tool available to them, Receivable Put Contracts. While different in many ways than Trade Credit Insurance, Receivable Put Contracts can work alongside Trade Credit Insurance to protect the risk of a customer’s bankruptcy.

What is a Receivable Put Contract?

A Receivable Put Contract provides suppliers with the ability to “pre-sell” their unsecured trade claims to a third party in the event of the bankruptcy of a buyer. The contract can be customized according to tenor and contract amount to meet the supplier’s needs.

There are two types of Receivable Put Contracts. The most common is a Pre-Petition Contract, which is typically purchased after the Trade Credit Insurance provider has stopped providing or canceled coverage but before the buyer has filed for Chapter 11 bankruptcy. Pre-Petition contracts typically offer 100% coverage, however, some providers provide flexibility of lower coverage amounts in exchange for lower pricing.

A Post-Petition Contact provides protection on companies that have already filed Chapter 11 bankruptcy and are still in bankruptcy protection, presenting a higher risk of liquidation. Investors are already in place for these contracts at coverage of 70-80% on average.

Receivable Put Contracts are typically issued for publicly traded or large private companies with audited financials. Coverage can be found for all sectors including, transportation, hospitality, airlines, retail, and metals, to name a few.

It should be noted that any bona fide obligation can be covered by a Put, not only receivables. For example, Puts can be secured for inventory finance or supplier repurchase default coverage. For a Receivable Put contract to “buy the claim” the obligation due, i.e., amount owed to the vendor must be scheduled in the bankruptcy document.

How is a Receivable Put Contract Different from Trade Credit Insurance?

Here are the key differences between these two types of risk mitigation tools:

  • Receivable Put contracts are loss-occurring, meaning that the contract must be in place at the date of the loss. Trade Credit Insurance is risk-attaching, meaning that the sale of the good or service must have occurred during the policy period regardless of the date of the loss.
  • Receivable Put Contracts only protect against a buyer’s bankruptcy, while typical Trade Credit Insurance policies protect against both bankruptcy and protracted default (slow pay.)
  • Receivable Put Contracts are usually more expensive than Trade Credit Insurance. As such, they are usually only used when Trade Credit Insurance is not available due to the buyer’s risk profile. Due to this increased risk, rates are generally around 1% per month for coverage with a minimum contract term of 3 to 6 months and as long as 12 months.

Who Offers Receivables Puts?

Puts are offered by major banks and asset managers, as well as hedge and credit funds.

What are the Benefits?

Using a Receivable Put Contract allows suppliers to safely continue selling goods to a riskier companies when traditional Trade Credit Insurance coverage is not available in order to continue supporting their customer base and maintain market share. The contract essentially gives the vendor the ability to sell their claim at a predetermined price and discount rate.

Find Out More

Receivable Put Contracts can be an integral part of a company’s credit risk mitigation strategy, alongside Trade Credit Insurance, for protecting receivables in today’s volatile economic environment. LiquidX offers Receivable Puts as part of our overall trade finance and working capital management offering. If you would like more information, please contact Todd Lynady, Global Head of Insurance Sales & Business Development at tlynady@liquidx.com or +1 (718) 866-8454.

Banco Bradesco Joins LiquidX Platform as First Latin American Funder

NEW YORK, March 16, 2021 (GLOBE NEWSWIRE) —
LiquidX, the global technology platform for working capital, trade finance, and insurance, is pleased to welcome Banco Bradesco to its network. Banco Bradesco, founded in 1943, is the second largest private sector bank in Brazil by total assets, serving clients through 79.9 thousand Service Points, 70 million customers, and 32.3 million account holders.

Over 50 liquidity providers are now on the LiquidX platform, providing flexible access for funding all working capital needs through a single access and interface.

Jim Toffey, CEO of LiquidX, commented, “We’re thrilled about Banco Bradesco joining the platform. We’ve been very eager to expand our customer-base to Latin America, and we’re fortunate to be working with a bank of Bradesco’s size and reputation. Bradesco’s clients can transact in accounts receivable, supply chain finance, and trade credit insurance – all within a single intuitive interface. These clients don’t have to work with multiple applications and vendors to manage their working capital, as they will have the full suite of transaction functionality in a single web-based screen to transact smarter, faster, and cheaper.”

“As the most valuable brand in Latin America and present in the United States since 1982, we are happy to join LiquidX to increase our supply chain financing capability, following our customers’ needs in line with our new determination to have our customers at the center of our decision making,” said Eduardo Waddington, Senior Corporate Banker for North America. “Some of our most important US multinational clients are already engaged in this next generation financial technology and we intend to expand our presence with other US companies that have some kind of Brazilian connection.”

About LiquidX
LiquidX is a leading global technology company that enables corporate finance professionals to transact faster, smarter, and cheaper by digitizing their trade finance and working capital management. Headquartered in New York with offices in Boston, London, and Singapore, LiquidX delivers the industry-leading ecosystem for working capital assets to its diverse network of global participants including multinational corporations, banks, institutional investors, and insurance providers. LiquidX incorporates blockchain technology and machine learning analytics to greatly enhance transparency, reporting, and forecasting for financial professionals. To learn more about our next generation solutions please visit www.liquidx.com.

InBlock Webinar at Global Blockchain Business Council

LiquidX Chief Revenue Officer Ali Hackett and Managing Director Kristen Michaud were featured speakers at a webinar of the Global Blockchain Business Council, the leading industry association for the blockchain technology ecosystem. The presentation, “Transforming traditional working capital management into a digital asset network,” outlined the issues faced by companies, banks and insurers when handling traditional paper-based trade documents.

A recording of the webinar is available here.

Key points include:

Working capital assets (purchase orders, invoices, insurance policies, etc.) cause havoc for downstream cash management since these assets are governed by physical documents (i.e., master service agreements, contracts) whose covenants do not travel with the asset through its lifecycle.

LiquidX’s @InBlock digitizes assets and their accompanying governance, allowing for tracking of both assets and their underlying cashflow. This capability has huge benefits including better cash forecasting, less time spent on reconciliation, and creation of “trusted assets” that are free to flow between departments, entities, and counterparties.

Further, with data out of silos and single-use platforms, AI and machine learning can be used to identify payment patterns which ultimately improve cash forecasting. InBlock modules for invoice to pay, order to case, monetization, reconciliation, cash forecasting, and position and risk monitoring provide a unique “wing-to-wing” solution.

LiquidX appoints executive from Allianz’s Euler Hermes unit as Global Head of Insurance Sales and Business Development

LiquidX is pleased to announce the appointment of Todd Lynady as Managing Director and Global Head of Insurance Sales and Business Development.  In this role he will be responsible for leading the firm’s sales, origination and business development strategy for LiquidX’s trade credit insurance digital marketplace.

Over his 20+ year career in trade credit insurance and commercial finance he has held roles of increasing responsibility and brings a unique blend of credit underwriting and sales experience to the organization.  He joins LiquidX from Euler Hermes where he most recently served as Regional Head of Broker Management for the Americas region.  In this role he was responsible for the origination, underwriting as well as account and portfolio management strategies for Euler Hermes’ strategic broker partners in the USA, Canada and Brazil.  Todd started his career at Euler Hermes, in their World Agency unit, when he and a team of underwriters where recruited to develop and launch their XoL/Non-Cancellable underwriting product in the Americas region.

Before joining Euler Hermes Todd was a founding member and Deputy Head of Zurich’s Short-Term Multi-Buyer Trade Credit Insurance team and prior to Zurich, Todd served as a vice president and senior business development officer for both GE Capital and Textron Financial Corporation, originating and structuring asset-based and cash flow loans for corporate borrowers.  Todd began his career as a regional manager for Atradius Trade Credit Insurance, Inc. where he was responsible for the origination and underwriting of trade credit insurance programs.

Todd earned his bachelor’s in accounting from Susquehanna University and his MBA from St. Joseph’s University.

LiquidX Welcomes Managing Director David Berse

LiquidX is very pleased to welcome David Berse to the team as a new Managing Director. David joins LiquidX on the originations team where he will lead sales and origination for LiquidX’s Supply Chain Finance product offering.

David brings considerable corporate banking experience, having spent the last 12 years developing and structuring innovative transaction banking and liquidity solutions. David was previously a Sales Director at Bank of America, helping multinational corporations optimize working capital, improve liquidity and increase treasury efficiency by devising global trade finance and cash management solutions. Previously, David managed a team of cash management sales specialists at Deutsche Bank, focused on structuring cash management, liquidity, and FX solutions for the Industrial and Consumer/Retail sector. Prior to that, David served various roles at J.P. Morgan, including a Treasury Services Advisor and a Liquidity Solutions Specialist. David has his bachelor’s degree from Rutgers and his MBA from the NYU Stern School of Business.

LiquidX Welcomes Managing Director Chris Hall

LiquidX is excited to welcome Chris Hall to the team as a new Managing Director. Chris joins LiquidX on the Sales team to lead efforts with corporate outreach, providing expertise around working capital solutions and structured finance.

Chris brings extensive corporate and investment banking experience, most recently at Mizuho Securities USA where he was the Co-head of the Tech, Media, and Telecom (TMT) corporate and investment banking industry group.  During his 15 years at Mizuho, Chris delivered corporate finance advisory, trade finance, working capital, securitization, M&A financing, and risk management solutions for his clients. Prior to Mizuho, Chris spent 15 years at Deutsche Bank where he served as Managing Director leading the TMT Banking group. Chris has his Bachelor’s in Mechanical Engineering from Rensselaer Polytechnic Institute and his MBA in from the NYU Stern School of Business.