Protect Your Accounts Receivables With Credit Insurance

YOU: What do you mean you aren’t covering Nasty Gal with credit insurance? They are growing so quickly and they are one of my largest customers right now….

ME: There is a reason why we are not covering them at the moment. You are welcome to sell to them but we will not take on the risk for you.

YOU: What do I do now?

That’s a quick example of a conversation we have been having a lot these days. Retail credits are getting tough and businesses are changing quickly. Because we provide Purchase Order Funding and Credit Insurance we get a lot of calls from manufacturers that are selling to high growth organizations. More and more we are seeing the e-tailer or subscription box companies scaling quickly. Unfortunately for those same organizations their credit available from manufacturers, suppliers, and factors usually does not grow as quickly. This means cash management should be at the forefront of their growth plans, not an afterthought as it sometimes is.

nasty gal petitions to file for chapter 11

Starting a few months ago we stopped covering the Nasty Gal credit insurance. A number of our clients were selling to them, and a number have been selling to them for years. It’s hard to tell a client that we won’t cover their purchase order funding or factor the accounts receivables of one of their larger customers. It really is a challenge, but in the end it’s usually a good call.

We rely on some of the brightest credit professionals in the industry to provide guidance on which companies we should be financing. When a client comes to us for Purchase Order Financing or Accounts Receivable Factoring it’s important we do our homework to protect our clients and ourselves.

The chatter started months ago when Nasty Gal began demonstrating slow payments. Vendors weren’t getting paid on time and the rumor mill started to heat up. I’m not sure if most of what we heard was the company making excuses for slow payments or their vendors just having wishful thinking. You can have the most technologically advanced payables management program in the world but if you don’t have the cash or credit you still can’t pay your bills.

non recourse factoring and credit insurance

In the Nasty Gal situation, according to a WWD article(you can view the original article HERE), the three groups with the most exposure include UPS, two vendors(one shoe company and one dresses), and their landlord totaling over $1,000,000 in outstanding debt.

Luckily, nobody I know is too overexposed here. A few dollars here and there but nothing too serious. A service we provide as a Non-Recourse Factor is credit insurance. We provide protection and guidance against the credit risk of your customers. In certain events of default due to financial hardship of your customers, we help cover that loss. I know it’s hard to fathom our big fancy customers with seemingly endless amounts of cash defaulting on us, but it happens and we need to be protected.

What can you do if Nasty Gal owes you money? Speak with your trade credit insurance specialist or your factor as soon as possible. Typically the company will communicate directly with those people they owe money to. Maintain close contact with your buyers and other people in the organization and hopefully they can reemerge stronger than ever and begin buying from you again.

Think about it. Many companies, large or small, are using some sort of financial product to help with their working capital, cash flow, or growth funding. It’s smart to leverage your assets in effort to grow. On the flip side, if a company isn’t managing their cash flow properly they run into issues regardless of how big or small they may be.

Non Recourse Accounts Receivable Factoring

Going back to credit insurance, why wouldn’t you have it? Your largest personal assets like your home(s), cars, and jewelry are all insured, right? Why not insure your companies largest assets, your accounts receivable? The costs are relatively low and it’s included when you get set up with a non-recourse factor like Star Funding.

Star Funding has been providing Purchase Order Finance and Accounts Receivable Factoring for over 17 years. Please contact us today if you are interested in learning more about how we can help grow your business.

Feel free to share...