Enabling Contract Monetisation With Credit Insurance
Snapshot:
- The use of contract monetisation as a financing strategy should be evaluated by corporate treasurers as it can improve liquidity positions without raising debt levels.
- Insurance risk capital can play an important role in enhancing financing programs and credit insurers are a natural partner due to their deep expertise in receivables credit risk.
- As corporates seek new and innovative sources of liquidity to fuel revenue growth ambitions, adoption of contract monetisation can be a valuable strategy.
A continued focus on working capital management and its importance in meeting both revenue growth and profitability goals has seen corporate treasurers increasingly considering new and innovative approaches. One strategy is the use of contract monetisation to accelerate cash flows owed under medium to long-term contracts, as it is valuable in balancing operational liquidity requirements with longer-term growth objectives.
Whilst the benefits are clear, successfully executing a contract monetisation program can be complex and requires unique structuring expertise. Some of the challenges with structuring a bankable contract monetisation transaction lie in identifying an appropriate commercial contract, understanding the nature of the underlying receivables, and ensuring fair alignment of risk and reward amongst the counterparties involved.
Credit insurers are a key partner in enabling these transactions by providing a credit enhancement effect and allowing lenders to offer favourable financing terms. With deep experience in covering short-term receivables risk, credit insurers also apply a nuanced risk lens to the underwriting considerations for contract monetisation.
Download our article to learn more about the use of contract monetisation as a valuable financing strategy.
Download
