Selling to Financially Distressed Buyers
Business relationships with highly stressed buyers can be extremely difficult to manage. The “Accounts Receivable Put” provides protection to clients selling to extremely high risk buyers in situations where traditional single buyer credit insurance is not available.
Accounts Receivable (A/R) Put Contract
An A/R Put Contract is made between the seller and the protection provider covering sales to a distressed buyer for a specified period of time and is generally structured in the following manner:
- Seller delivers products to distressed buyer, generating an accounts receivable
- Client purchases rights to “put” up to 100% of the accounts receivable to the protection provider upon a “Trigger Event” (in the U.S. usually a Chapter 7 or 11 filing by the distressed buyer)
- Once the “Trigger Event” happens and the “put right” is triggered, the protection provider will pay out the level of protection specified in the contract.
Advantages to A/R Puts:
- The “put right” is non-cancelable for the period of time specified in the contract.
- Settlement is usually within 30 days, with interim settlements customary.
- Though more expensive than credit insurance, it allows the seller to maintain relationships in the face of extreme stress on the buyer, its industry or supply chain.
Clients selling to buyers in the following industries are likely candidates for A/R Put protection:
|Automotive||Auto Parts Suppliers||Airlines||Trucking|
|Retail||Steel & Metals||Commodities||Chemicals & Energy|
|Home Builders||Construction||Airline Services||Paper & Packaging|
Newstead Group members maintain relationships with financial institutions providing “Accounts Receivable Puts”. Please contact us for further details on the advantages and limitations of this product.