ACCOUNT RECEIVABLE CREDIT PUT OPTIONS
An AR Put Option is a contractual obligation between a vendor and the put seller. If a vendor's customer files for bankruptcy, the vendor has the option to assign ("put") the qualifying receivables to the put seller at face value. The put seller has a senior obligation to buy the qualifying receivables at face value.
AR credit puts are NOT exchanged traded puts, and are offered by a select set of global financial service firms. AR puts are being used increasingly by credit professionals to protect select high risk or concentration exposures and to expand credit limits because they provide:
- Non-cancelable protection
- Flexible tenors from 6 months to 5 years
- Up to 100% protection with no co-insurance or deductibles
- No change to payment process or notice to customer
- No reporting is required
- Documentation is less conditional than other forms for protection
Many FGI Risk customers that have significant exposure to a limited number of customers have chosen to protect those focused risks with AR Credit Put Options.