Premium funding and trade credit insurance are key tools organisations can use to smooth out the ebbs and flows of the business cycle and better manage their cash flow. Within this space, Elantis Premium Funding and NCI have worked together for around a decade to help provide brokers and their clients with the tools they need to succeed. Insurance Business sat down with Elantis CEO Nick Cunningham and NCI managing director Kirk Cheesman to find out more about premium funding, trade credit insurance and the intersection of the two products. As industry veterans, both Cunningham and Cheesman have key insights to offer brokers, whether they’re new to these fields or have long been advising clients on the process.
The funding industry’s ability to support SMEs in Australia is a point of pride for Elantis CEO Nick Cunningham. First and foremost, he says, premium funding allows for businesses to have more effective cash flow by allowing them to spread out premiums over a year or more.
“At Elantis, we take the complexity out of premium funding to offer a low-cost solution to businesses,” Cunningham says. “We understand small businesses, and we know that when a small business is required to pay a lump sum upfront, that it can be hard for them to manage. When the cost is spread across 12 months, it’s much more manageable – premium funding is all about helping people manage their cash flow.”
Elantis works on the concept of the return premium for security; they don’t require other security. Loans are generally able to be processed more quickly than by banks, and while checks are required, they’re typically not as stringent, which better facilitates funding for those who need it.
“We put a lot of emphasis on what I like to call ‘kick-ass customer service’, and this is really just a logical extension of that,” Cunningham says. “We can’t claim to be supporting SMEs effectively if we’re making them jump through all the same hoops that the big banks would.”
Of course, premium funding is a lending industry with risks like any other, Cunningham points out. “My assessment is we’re heading into some uncertain times with the economy slowing,” he says. “We’re prepared for this, and we’re here to help small business through the tough times.
“There’s the usual default risks,” he adds. “If a business collapses and goes into admin, we’re like any other creditor trying to get their money back.”
Strong partnerships with brokers can make all the difference during difficult times. Elantis works closely with brokers to provide them with current information around industry developments and premium funding options for clients.
Cunningham stresses that providing educational tools about the financial component of premium funding is crucial. Elantis facilitates this through its Elantis Learning Academy, holding a series of face-to-face and online sessions for brokers each year.
Cunningham feels that skills like being able to read balance sheets and P&L statements are essential for brokers who want to provide a holistic solution to their clients.
“Just like in any other area of life, risk and reward are very closely linked,” he says.
“The more information we have, the better we’re able to calculate effective premiums. Brokers need to ask for information from clients in order for us to assess the loan and price it. The more information brokers can provide to Elantis allows us to assess the risk better. If we understand the risk, this can translate to better premiums for the clients.
“All businesses go through cycles,” Cunningham adds. “Where premium funding hasn’t been required the previous year, it’s always a good for the broker to have the conversation with their clients again to ensure that, together, we’re meeting all of their business needs and supporting them when they need it.”
“We can’t claim to be supporting SMEs effectively if we’re making them jump through all the same hoops that the big banks would” Nick Cunningham, Elantis Premium Funding
Trade credit insurance
Trade credit is a high-touch, high service product that requires daily contact with clients – but it’s arguably one of the bestkept secrets in the industry. The simple truth, says NCI’s Kirk Cheesman, is that many businesses aren’t aware of the ways it could benefit them – especially in higher-risk industries like building and construction, where chasing payment can be a very real issue.
“In Australia, there’s still very much a ‘she’ll be right, mate’ type of attitude towards customers paying on time,” Cheesman says. “In other zones, especially in Europe, trade credit insurance is heavily used to protect business profits.”
The debtor’s ledger, Cheesman explains, is often the largest current asset of a business and has more risk attached to a potential insolvency than other insurance claims on fixed assets. Given that any business that sells goods or services on credit, domestically or internationally, can take advantage of trade credit insurance, Cheesman feels it should be used much more widely.
“Trade credit insurance offers protection against non-payment – insolvency – from a debtor who owes the supplier money for goods or services,” he says. “Typically, a trade credit insurance policy will offer 90% cover of the amount owed in the event of a loss.”
Trade credit insurance premiums enable customers to pay their premium over a number of months, allowing the client to smooth out their premium costs and assisting their annual cash flow. It can also work in conjunction with premium funding to bring down overall costs.
“Clients from small SMEs to large ASX-listed companies find premium funding an excellent offering to support their business,” Cheesman says. “We support Elantis with debtor risk management and monitoring of their customers. This helps keep an eye on credit risks and enables them to react when changes or adverse effects occur.”
When it comes to selecting an insurer, Cheesman points out that different trade credit insurers will have a wide variety of products, terms and conditions, so brokers must investigate closely to ensure they achieve the best result for their client.
“We’re dedicated to being a specialist trade credit insurance broker,” he says, “so NCI offers support and co-relationships with general brokers to assist them in highlighting to their customers the credit risk elements that could apply to their business. We talk through the questions to ask to see if trade credit insurance is a viable option for them. We also provide regular updates on the credit environment, and the NCI quarterly Trade Credit Risk Index gives insights into trends across various elements of credit risks.”
Cheesman notes that marketing a potential client to trade credit insurers needs to be a comprehensive process that analyses the full credit risk and cover requirements of the prospect.
“Insurers have differing appetite on credit risk in various industries,” Cheesman says. “Value-adds are increasingly common, too – things like support for collection costs, overdue debt recovery and legal action. It’s all about finding out the intersection between client needs and available product offerings.”