Enhancing Earnings Per Share for publicly traded companies: Trade Credit Insurance Strategy

Written by Anani Klutse, MBA, M.A.Sc. International Risk Expert. Published October 23, 2023.

In today's dynamic financial landscape, publicly traded companies are constantly navigating numerous obstacles. As market complexities evolve, trade credit insurance emerges as a pivotal tool that enhances financial performance. Here's a deep dive into how trade credit insurance is a strategic tool for publicly traded companies:

1. Dynamic Risk Assessment of customer creditworthiness:

Beyond the traditional assessment metrics, state-of-the-art trade credit insurance platforms utilize AI algorithms and big data analytics. These tools excel at analyzing vast datasets and enable a dynamic evaluation of a customers’ creditworthiness. This produces real-time, granular insights that empower improved decision-making, directly impacting the bottom line and improving EPS.

2. Capital Efficiency:

Financial acumen dictates the significance of an optimized Weighted Average Cost of Capital (WACC). By effectively managing financing and equity risk with trade credit insurance, companies can lower their WACC, thereby maximizing shareholder value and enhancing overall capital structure.

3. FX Risk Management:

Due to volatile currency markets, protecting against foreign exchange risks is a strategic necessity for companies with global operations. Tailored trade credit insurance policies with customized endorsement, can include coverage for currency fluctuation risks, safeguarding the bottom line from unpredictable forex movements. This endorsement is designed to compensate the insured for losses that arise from unfavourable changes in currency exchange rates between the date of invoicing and the date of default or the date the claim is paid.

4. Liquidity Ratios:

Accounts Receivables often represent one of the largest assets on a company's balance sheet. By insuring this asset, companies can bolster crucial liquidity metrics, such as the 'quick ratio'. This directly translates to an improved perception of the company's short-term financial health, which can be pivotal for investor confidence.

5. Credit Term Optimization:

With the advent of sophisticated data analytics within trade credit insurance platforms, companies can discern optimal credit terms. This enables them to strike a balance between offering attractive payment terms to customers and minimizing credit risk, achieving a competitive edge without jeopardizing financial stability.

6. Market Entry and EPS Enhancement:

Venturing into new, especially international markets, offers companies substantial growth prospects. However, the uncertainties of these unfamiliar territories can pose risks to earnings. Trade credit insurance becomes a catalyst in this setting. By safeguarding against potential defaults from uncharted customers and providing insights into the creditworthiness of businesses in these markets, trade credit insurance not only mitigates risks but also drives earnings stability. Consequently, as businesses expand securely with the support of trade credit insurance, they can experience an uplift in their Earnings Per Share (EPS), making it a strategic tool for ensuring consistent growth in shareholder value.

7. Regulatory Compliance:

In an era marked by tightening regulatory frameworks, achieving compliance with standards such as SOX, IFRS 9, and Basel III is imperative. Insuring your A/R streamlines this process. Trade credit insurance policies, recognized by major regulatory bodies worldwide, act as a financial safeguard and help with compliance to widely used financial guidelines and standards.

8. Supply Chain Resilience:

In the interconnected world of global business, supply chain disruptions can be catastrophic. Trade credit insurance acts as a financial protection, ensuring that any financial disruptions in the supply chain like a key partner's insolvency don't derail operations. It's a strategic financial check and balance mechanism that ensures consistent cash flow and operational continuity.

9. Integrated Risk Modelling:

By incorporating insured A/R into Enterprise Risk Management (ERM) frameworks, companies can achieve a more comprehensive risk overview. This integration facilitates the simultaneous evaluation of both operational and credit risks, enabling a strategic, data-driven approach to risk mitigation which directly influences the EPS of the policyholder.

Key takeaways: Enhancing Earnings Per Share for publicly traded companies

For those publicly traded companies seeking to infuse their financial risk management with unmatched technical precision, the conversation surrounding trade credit insurance is essential. At Tradebrokers we offer sophisticated solutions which bridge the gap in traditional financial frameworks, and protects earnings regardless of the macroeconomic landscape.

Contact our specialty brokerage today and let's start optimizing your financial strategy for success.