Extra Credit

The current climate is changing insurers' business strategies, too. In underwriting, says Seneca, there's a greater emphasis on credit analysis, and a higher level of due diligence. "There's also a greater appreciation of knowing who you're trading with," he adds, explaining that people in businesses who use such coverage are working harder to understand both credit and their business partners. Being mindful of such issues may be required these days to get coverage. It used to be, he says, that the last check received from a customer was a pretty good indication of how sound the customer's business was, but not any more. "People will be paying their bills, and the next thing you know they're out of business."

Says Seneca, "An advisor who wants to take a holistic approach in helping clients and is involved in preservation of wealth by mitigating risk should be asking business owners questions related to their customers." He suggests that some of those questions should be: At what level would you not want to suffer a loss? At what level does a loss have a financial implication for everything you've accumulated? At what level would you not be able to afford a loss? And at what level would a loss threaten all your future plans?

Receivables are property, reminds Seneca, over which a business has no control. "If you have extended terms, then you have a risk of loss," he points out. He adds that translating a balance sheet into pie chart format would result in a receivables wedge in which the majority of a business' assets can be centered, and often that wedge is uninsured. But businesses are showing more interest in credit insurance coverage, he says, due to "defaults by buyers who were creditworthy and weren't showing signs of weakness, and people being taken by surprise."

Marlene Y. Satter, is a freelance business writer who can be reached at [email protected].