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It wouldn’t be a stretch to say that the job of customer risk management may be more difficult now than ever before. Some of these factors include: (i) the explosive growth of the 2nd Lien and Leveraged Buy-out market; (ii) continued record high oil and other commodity prices; (iii) rising interest rates; and (iv) a potential housing bubble.
The good news is that there is an option available to you and your organization. The product is known as an Accounts Receivable Put Contract.
The probability of collection drops dramatically as receivables age. This problem is exacerbated by the fact that the real net value of receivables is reduced further by the working capital that must be borrowed to fund them.
Receivables are typically the second most liquid asset on a company's balance sheet after cash, and protecting them is no less important than protecting inventory, equipment and property. This is especially important where 80 percent or more of sales are made to 20 percent or less your customers.
There are several ways of mitigating accounts receivable risks, chief among them are Credit Insurance, Letters of Credit, Factoring, Securitization, Purchase Money Security Interests, Consignments and Puts. Accounts receivable Put Contracts are examined here.