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What Experts Think

What is Export Insurance, Who Needs it and Why?

Export credit insurance is specialised insurance coverage designed to protect a trader’s foreign accounts receivable. As an international trader, dealing with foreign buyers can be challenging. Things can get even more complicated when you advance credit to a trader with a low credit rating. This can pose a danger to the continuity of your business.

Luckily, export credit insurance can help your business hedge risks that may affect the payment of exports. With this type of insurance, you can rest assured that you will receive payment when buyers delay or default payment due to bankruptcy or political risks.

Who Needs Export Credit Insurance (ECI)?

If you supply goods and services to foreign buyers on credit, you need export credit insurance. It doesn’t matter whether you’re new to international trade or have been doing business with foreign buyers for years. Having export credit insurance coverage can help protect your investment.

No matter how long you have worked with a particular buyer, you may not always know what affects them. Unforeseen events can ruin even the most robust international trade relationships. Nothing is as frustrating as losing a customer and failing to get paid. This is why export credit insurance is essential for any trader exporting goods internationally.

Why do Exporters Need Accounts Receivable Insurance?

An export credit insurance is an excellent payment risk management tool used by multinationals and SMEs in international trade. Some of the reasons why you need trade credit insurance include:

  • Reduced Risk of Nonpayment – An export credit insurance means you can receive your payment if the customer fails to pay due to political risks, default, insolvency, or other reasons indicated in the policy. To mitigate export credit risks, you should identify high-risk accounts, create a risk management strategy, and secure your accounts receivables with an insurance broker.
  • Grow Your Business and Explore New Markets – Most businesses use export credit insurance to trade. It can also come in handy when you want to penetrate new markets. Your trade credit insurance company will probably verify the credit worthiness of your new customers. You can use this information to decide whether you can ship goods to a new buyer on credit. Besides, the research can help you understand more about a new market.
  • Easy Access to Funds – Almost all financial institutions funding businesses are risk-averse. They’ll require you to prove that your business’s bottom line is secure. You can negotiate better with prospective financial providers with an export credit insurance policy. This can help you enjoy a higher credit line, lower interest rates, or better still, it can be the difference between the denial and the approval of your loan.
  • Tax Benefits – You should account for a loss reserve whenever you do business. An export credit insurance can help reduce your organisation’s loss reserve by having the assurance that you will receive compensation for nonpayment. This ultimately results in a lower overall tax burden because the export credit insurance premiums are tax-deductible.

How Niche Trade Credit Can Help

At Niche Trade Credit, we offer various export credit insurance products designed to fit businesses in international trade. Therefore, we are eager to help you find the right export credit insurance policy for your business. Call us at (02) 9416 0670 today to learn more about how best we can help protect your business.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

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What Experts Think

What Happens To Business Debt When A Company Is Sold

Knowing how to handle business debt when a company is sold is essential. In particular, you need to know what happens to your accounts receivable and accounts payable when one of your customers decides to sell their business. You should think about protecting your business from potential liabilities resulting from the sale.

Unfortunately, most business owners don’t consider what could happen to their business debt when a company is sold. Although there are instances where the debt is absorbed in the sale as part of the transaction, you shouldn’t presume that it will be fully recovered in the process.

Note that a business sale can have a significant impact when it comes to recovering the money owed to your business. Debt management experts at Niche Trade Credit explain the basics of what happens to business debt when a company is sold.

Understanding the Most Common Sale Structures

There are two basic types of business sale structures in Australia. Read on to know what they are and how each approach recognises debt at closing.

Stock Sale

A stock sale is where the purchaser takes over everything a business owns, including shares, assets, and liabilities. Once the buyer acquires the business, they assume full responsibility for the company by virtue of being the new owner. For example, if a company sold in a stock sale has an outstanding debt, the new owner would now be held accountable for that business debt.

Typically, a stock sale is complex, time-consuming, and pretty costly to assess the risks involved with each business liability. For that reason, they are often used for large, established firms. Small business purchasers may lack the necessary resources and financial muscle to handle such transactions. Thus, most small deals are classified under asset sale transactions.

Asset Sale

In an asset sale, specific assets and liabilities are transferred between the buyer and seller. This method of business sale isn’t that straightforward because it permits the transfer of certain assets while limiting others.

Based on circumstances, asset sale transactions vary greatly and are subject to negotiation. A major concern in an asset sale is that you may be unable to tell who owes you money, which is why you should try to recover your outstanding business debts.

How to Safeguard Your Business When a Company Is Sold

  • Don’t extend credit until the company is sold – If the company can pay upfront, we suggest you stop offering credit until the sale is closed. This will help manage your collectible payments.
  • Keep up with your customers – Staying aware of your customers’ status can let you know their next move.
  • Recover outstanding invoices – It’s also important to follow up on the outstanding invoices with the business’s new owner.Hire a debt collection and recovery service – Another way to protect your business against bad debt is by hiring a debt collection and recovery firm to help you recover the money you’re owed.

Protect Your Business with Niche Trade Credit

Whether you’re buying a business or a customer is selling their business, it helps to find ways to recover outstanding debts if you’ve been selling goods and services on credit. The trade-credit insurance brokers at Niche Trade Credit can help your balance sheet and your business. We offer the best credit insurance services and debt collection and recovery solutions to protect your business.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

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What Experts Think

What Is Credit Risk Exposure

When extending credit, whether credit cards, mortgages or other forms of loan, there is always an element of risk that the borrower may default. This chance of loss is called credit risk; the risk of the borrower’s failure to meet the agreed responsibilities or pay back a loan once it has been sanctioned.

That said, credit risk exposure is the maximum potential loss you could suffer if a borrower default on payments. This loss may include lost principal and interest, interference with cash flows, and increased collection costs. Credit exposure can be partial or complete and can occur under different circumstances, including the following:

  • A borrower failing to make the required mortgage or credit card payments
  • A debtor failing to pay a trade invoice when due
  • A company unable to make timely principal payments on debt owed
  • A company unable to pay outstanding employee wages or salaries when due
  • An organisation failing to pay asset-secured floating or fixed charge debt

While financial institutions can’t run without risks, they can alleviate them. Taking calculated risks is a good strategy for any business to manage risks and survive in the long run. Credit exposure is usually calculated based on certain agreements like long-term contracts or repayment loans.

Understanding your credit risk exposure is the first step to managing your business’s credit risk. Conduct an audit on your operations to identify your credit default risk and implement measures to secure your business and mitigate your credit risk exposure.

Types of Credit Risk

Credit default risk

This is the risk you assume in the possibility that a borrower will not make the required payments on their debt obligation. It often occurs when a borrower fails to fulfil their promise on loan repayment and is already 90 past the due date. All credit-related financial transactions, such as credit derivatives, loans, and bonds, are susceptible to this type of risk.

Concentration risk

This is the potential for a loss in value associated with an individual exposure or a group of exposures that is damaging and recovery is unlikely.

Country risk

Country risk is the uncertainty related to investing in a foreign country. It involves the risk of defaulting on a company’s foreign currency payment obligation and is often associated with a country’s microfinance performance and political stability.

Counterparty credit risk

This is a chance that the counterpart to a financial transaction could not honour the agreement before the final settlement of the agreement.

How to Control Credit Exposure

  • Know your customer – Knowing your customer is a concept that enables you to select your customers diligently. You can reduce your credit risk by performing a credit assessment on potential clients before selection. Clients with higher credit ratings are unlikely to default on their debt obligation.
  • Set accurate credit limits – Evaluate your customers’ finances and impose accurate credit limits. Check on core indicators such as the company’s financial reports, profits, and net worth to establish your financial health. Also, remember to determine your business’s capital requirements to know its ability to fulfil short-term financial obligations.
  • Conduct due diligence to strengthen your credit control function.
  • You can also control your credit exposure by introducing stiff measures like penalties and loan products with a higher interest rate.

Protect Your Business With Niche Trade Credit

Niche Trade Credit has provided credit insurance solutions for the past 30 years. If you’re interested in protecting your business on a global scale, please call us at (02) 9416 0670 for assistance.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

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What Experts Think

Difference Between a Letter of Credit & Export Trade Credit Insurance

Many international traders are unsure about the best way to safeguard their businesses from bad debts. Export credit insurance and letters of credit may be some of the most viable options. Both ensure you minimise debt risks and receive payments on time, according to the agreement between you and the other trader. Below is everything you need to know about the letter of credit and export credit insurance.

What is a Letter of Credit?

A letter of credit is an excellent way to ensure your buyers pay you when you ship goods and services. It is a commitment by a financial institution to pay you on behalf of the debtor or importer.

Usually, the exporter requires the importer to have a letter of credit, mainly if the buyer is likely to fail to make the payment as per the agreement. A typical commercial letter of credit value is up to 3% of the transaction.

It is essential to note that the issuing bank will only pay you if the delivery meets the conditions set. Some of these conditions may include quality of goods and on-time delivery. The best thing is that the Australian banks can back your letter of credit to ensure you have peace of mind knowing your accounts receivable are protected.

This method can be cumbersome, time-consuming, and expensive in the modern digital world. Buyers must obtain a letter of credit from their banks before a shipment. Even the most insignificant letter of credit error can cause the financial institution to fail to issue payment after delivery. For these reasons, a buyer who is used to terms that allow them to pay for the goods after delivery may resist using a letter of credit.

How does Export Credit Insurance Works?

An export credit insurance is a form of policy that protects business’ accounts receivable from unpaid debts. It is also called accounts receivable, debtor, or trade credit insurance.

With trade credit insurance, you will be guaranteed that all invoices you send to your customers are paid even when the debtor goes bankrupt or is affected by political risks. Depending on the agreement with your insurer, you can insure multiple accounts, a single customer, or a single invoice.

If a customer fails to respond to you or fails to complete the payment due to bankruptcy or any other reason, your insurer will indemnify you up to your coverage limits. Typically, you will receive 85-100% of your export insurance policy’s transaction. It is essential to note that some insurance companies have the discretion to limit your transaction amounts. This means that your insurance might verify buyers’ credibility and credit worthiness.

The decision to use letters of credit or export credit insurance depends on various factors. A letter of credit may be an excellent way to establish and develop a relationship with a new customer. On the other hand, export credit insurance may be appropriate if you want to recover the defaulted payment without involving the buyer or their bank.

Contact Niche Trade Credit Today for Assistance

If you’re still unsure whether to choose a letter of credit or export credit insurance, the team at Niche Trade Credit will offer the quality advice you need. We’re also ready to guarantee cash flow and help you grow your customer base with our trade credit insurance products.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

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What Experts Think

What is Structured Trade Credit Insurance?

Structured trade credit insurance is essential for investors, financial institutions, and corporates operating within the highly volatile, structured trade finance landscape. It helps regulate credit default risks, particularly those linked with economic crises, non-payment for trade receivables, and political risks.

It can also improve credit risk management by harnessing risk monitoring, credit information, and debt collection services offered by insurers. With trade insurance, your company can provide more open credit to clients and enter new markets.

Trade credit insurance allows organisations to secure better financing terms by using the insured accounts receivable as collateral while helping support securitisations, credit programs, and receivables purchases. At Niche Trade Credit, we can help design and coordinate your credit and risk strategies to build a robust insurance program.

What Is Structured Trade Finance?

Typically, structured trade finance is a transactional funding product that enables a seller to source commodities on the strength of their customers using confirmed orders. It bridges the gap between the supplier demanding payment up front and the buyer providing a confirmed purchase order.

It is commonly used by traders, processors, producers, and consumers in the commodities industry. Structured trade is focused on financing valuable commodity flows in cross-border transactions. Techniques used include:

  • Tolling and processing
  • Reserve based lending
  • Warehouse financing
  • Borrowing based financing
  • Pre-export

In most cases, financial agreements are customised to meet each client’s unique needs. Payment of structured trade financing is based on the sale of the commodity and can be used to fund short- or long-term capital spending for up to 5 years.

The concept behind structured trade finance is that lenders are able to mitigate payment risks by structuring payment terms between two transacting parties. In structured trade finance, the lender can use various items as collateral, such as shipping documents, commodities, and letters of credit.

Structured Trade Credit Insurance – How Does It Work?

As a credit management product, trade credit insurance protects your business against payment risks related to the delivery of products and services. It serves as risk insurance that covers a portfolio of buyers with the policy covering an agreed amount of an invoice or a receivable that’s defaulted due to bankruptcy, protracted default, or insolvency.

When you purchase structured trade credit insurance, you can be sure your accounts receivable is entirely protected from non-payment loss arising from debtors’ debt. Claims payments from trade credit insurance can help enhance cash flow uncertainty.

What Are the Benefits of Structured Credit Insurance?

  • It protects suppliers from liquidity shortages from non-payment
  • It gives suppliers the ability to accept direct buyer risk
  • It provides suppliers with professional credit risk knowledge
  • Structured credit insurance protects a significant part of suppliers’ asset profile from loss.
  • With this insurance, suppliers can extend offer credit to their customers by asking for advance payment or secure letters of credit.

The team at Niche Trade Credit is adequately equipped and ready to handle any issues you may be facing regarding structured trade credit insurance. We will work with you to design a tailored program and adapt risk insurance to match your business needs. Get in touch for more details about our superior credit insurance services.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

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What Experts Think

Trade Credit Insurance Vs. Surety

Determining the best way to safeguard your business can be challenging. You might be wondering, “what type of insurance do I need to carry out international trade? Does the company require bonds? What is a surety bond, and what categories of surety bonds are available?” At Niche Trade Credit, we will help you find the right option by highlighting the difference between surety bonds and insurance.

Understanding Trade Credit Insurance

Trade credit insurance is a risk management product and insurance policy where the insured protects its accounts receivables from potential losses arising from bad debts. This means that trade credit insurance ensures that invoices sent to customers are paid if the customer defaults on payment or becomes bankrupt or insolvent.

Depending on the policy, the insured, and the insurance company, a company’s account receivables can be protected from risks arising from a single buyer or invoice. Besides, you can get a policy covering your business’s accounts receivables.

How Trade Credit Insurance Works

Suppose you deliver a shipment to a customer abroad, and they fail to pay due to insolvency, bankruptcy, political risks, or protracted default. In that case, you should receive compensation from your insurance company. It is essential to note that the settlement is up to the limits of your coverage.

You can recover about 75-100% of the entire transaction. This helps protect your cash flow even if your customer fails to pay the outstanding debt. Trade credit insurance or export credit insurance is an excellent way to guarantee business continuity.

What Are Surety Bonds?

A surety is a legally binding contract or agreement that involves three parties:

  • Obligee – The company or individual receiving the obligation or one who is protected by the surety bond
  • Principal – The individual who purchases the surety bond and is also responsible for meeting the requirements of the contract
  • Surety – This is usually an individual or an insurance company that supplies or issues the bond and assures the obligee that the principal will meet the terms of the contract.

Typically the surety company acts as a guarantor for the surety bond. If the principal fails to carry out the task agreed upon in the contract, the surety company should compensate the obligee. On the other hand, the surety should receive penalties from the principal as per the terms of the agreement.

In most scenarios, the bonding company receives a premium from the principal for the surety guarantee. Surety bonds are an excellent way to assure clients that the other party will live up to the terms agreed upon in the contract.

Types of Surety bonds

Some of the common types of surety bonds include:

  • Advance payment bonds
  • Customs bonds
  • Retention bonds
  • Tender or bid bonds
  • Performance bonds

Which Technique is Right for My Business?

Both Export trade credit insurance and surety bonds can protect your company, depending on the nature of your business and customer relationship. For instance, suppose you are a trader and feel that political risks may hinder your customers from paying.

In that case, it is advisable to go for export credit insurance. On the other hand, surety bonds may be suitable in industries where you must properly carry out a project. If you don’t, your client will be compensated.

Contact Niche Trade Credit

Call us at (02) 9416 0670 if you’re unsure about whether you should invest in a trade credit insurance policy. We will offer the advice you need to ensure you make a more informed decision regarding your business.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

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What Experts Think

Trade Credit Vs. Trade Finance: What’s The Difference?

Is there a difference between trade finance and trade credit? Well, these terms confuse many people, which is why they are often used interchangeably. In this article, we will explain the difference between trade finance and trade credit. We will also explore the advantages of trade credit and why it’s favourable for small-scale exporters and importers.

What is Trade Finance?

Trade finance refers to financing solutions that help exporters, importers, and other businesses accomplish domestic and foreign trade. In a nutshell, trade finance is a broad term for financial products facilitating international trade.

Some of the most common types of trade finance include:

  • Cash Advances – an unsecured payment of funds to the seller before the goods are shipped. Since it is unsecured, it can be a risky invoice financing option for the buyer as the seller may delay or fail to send the products.
  • PO Finance – a purchase order allows a financier to pay for goods and services and obtain the repayment from the buyer.
  • Term Loans – term loans include overdrafts and can be a sustainable source of finance. Usually, they are backed by guarantees and securities.
  • Receivables Discounting – you can sell bills of exchange, post dated checks, and invoices at a lower price than the value of the invoice.
  • Trade Credit – A cheap arrangement between the buyer and seller based on the trust between the two parties.

Understanding Trade Credit

Trade credit is a business financing agreement between the exporter and the importer or buyer and seller. It is a short-term financing solution that’s interest-free and does not entail engaging the two parties’ financial institutions. However, it is advisable to take a trade credit insurance policy to mitigate risks arising from the buyer’s payment default, insolvency, or bankruptcy.

Trade credit allows clients to buy goods and services and pay the supplier later. The supplier and the buyer commonly agree to use “net 30” or “net 60” payment terms. For instance, a “net 30” invoice terms reveal that the customer has a month (30 days) to clear the outstanding debt. Trade credit financing allows businesses to improve working capital and cash flow and settle accounts payables efficiently.

The customer can pay immediately or wait if they require more time to acquire the funds to finalise the transaction. This way, trade credit becomes an essential part of the supply chain and an important aspect of almost all international trade undertakings.

Benefits of Trade Credit Insurance in Trade Credit Arrangements

Trade credit is a straightforward and flexible business financing solution. However, importers and exporters are exposed to different risks since many factors can affect the customer’s ability to make payments.

A trade credit insurance company allows you to mitigate the risk of extending a line of credit. The supplier receives payment from their insurer for the accounts receivables based on the terms and conditions of the policy.

Contact Niche Trade Credit to Discover More

With more than 15 years in the insurance industry, Niche Trade Credit has what it takes to offer the advice you need to safeguard your business. Contact us now to learn more about the ins and outs of trade credit insurance solutions and trade finance.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

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What Experts Think

Trade Credit Insurance Vs. Factoring

Trade credit insurance and factoring are both identifiable disciplines in debtor management. If you are in business with international clients, you may have realised that these tools are complementary.

But what is the difference between these debtor management instruments? How are they related, and which is the right choice for your company? Read on to learn more about how Niche Trade Credit can help protect your account receivables and reduce credit risk.

Understanding Credit Insurance

Trade credit insurance, also known as debtor insurance, covers businesses that supply goods or services to their customers on credit. It’s basically the credit line that your organisation extends to third-party insurance companies when you make a purchase.

Credit insurance guarantees customer risk and offers certainty that your turnover will eventually be achieved by eliminating the risk of default. If your debtors fail to pay the outstanding invoices, the credit insurance company will fund the invoices. Besides paying the outstanding debts, a credit insurer offers several other services, including:

  • Debtor management
  • Continuous monitoring of the debtor portfolio
  • A debt collection system
  • A creditworthiness check
  • coverage against default

Remember that if you don’t have credit insurance, you may have no choice but to send your bad debt to various collections services to try and recoup the money. Unfortunately, this method is time-consuming and doesn’t guarantee the full amount you are owed. And that’s where credit insurance firms like Niche Trade Credit come into play to offer credit protection.

The Basics of Factoring

Unlike credit insurance, which insures you against the risk of non-payment, factoring allows you to obtain working capital for your business by utilising your outstanding invoices as collateral. Essentially, the factoring contract provides three major services: receivable financing, coverage of the risk of non-payment, and management of accounts receivable.

The logic behind the factoring concept is that a factoring company will purchase your outstanding invoices for a certain percentage (around 80 per cent) of their total value, and you will receive the funds instantly. After the transaction is complete, the factoring company sends the money granted to you after deducting applicable fees. With factoring, you can enhance your business’s cash flow and keep off bad debt.

What Is The Difference Between Credit Insurance And Factoring?

The main difference between these two principles is that factoring is a cash tool whose purpose is financing. This is particularly true because many factoring companies utilise recourse factors (an agreement that provides a time limit for invoice funding).

On the other hand, credit insurance provides coverage against non-payment. It also offers many other components, including continuous portfolio assessment, suspicious debts monitoring, and client solvency review.

How Niche Trade Credit Can Help

If you’re unsure which instrument is better suited for your company, Niche Trade Credit can help you make an informed decision. Please contact us to know how your company can benefit from our credit insurance solutions and learn more about related services that can help your organisation trade globally with confidence.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

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Benefits of Trade Credit Insurance

Accounts receivable form a critical aspect of any business. If your debtors cannot pay what they owe, your business risks incurring significant trade losses. Trade credit insurance or export credit insurance is a form of insurance coverage that allows you to safeguard accounts receivable from the risk of nonpayment. Export trade credit insurance policies are created to suit the needs of any business and offer several benefits.

What are the benefits of Trade Credit Insurance

  1. Access to Funding – Banks look favourably upon organisations with trade credit insurance and may provide extra funding to enhance the growth plans of these companies. If you want to use invoice finance, your financing company can get the security required to help you access additional funding. Besides, banks and other lending institutions may also lower the prices of funds to companies with insured receivables.
  2. Get Warning Signals and Information about New and Existing Customers – Trade credit insurers will monitor your debtors consistently to evaluate your organisation’s creditworthiness. The insurers can quickly obtain the credit rating of debtors and give you warning signs to avoid future risks and losses. This means that you can now operate your business with more confidence.
  3. Penetrate New Markets – Selling goods on credit may not be easy, mainly if you’re operating your business overseas. A trade credit policy allows you to quickly establish and maintain a business in new geographies since you will rest assured that your insurer backs you.
  4. Cash Flow Relief – Trade credit insurance protects your organisation’s assets from cash flow fluctuations, particularly those caused by unpaid invoices and bad debts. Unpaid invoices can result in insolvency, making it challenging for the organisation to bounce back to operations.
    Your business will have a safety net with a trade credit insurance policy since the insurer will issue indemnification of unpaid invoices. Therefore, if a debtor fails to pay what they owe, you can continue running your business as if they had paid.
  5. Legal Assistance – If a debtor fails to pay, the trade credit insurer’s legal recovery team will step in to try and recover the outstanding balances. This way, you can eliminate the need to hire “after the event” debt collection companies. Trade credit insurance legal teams understand how the legal recovery systems operate in various jurisdictions.
  6. Boosting Sales – Trade credit insurance policies can help your business grow and expand seamlessly. It enables you to improve your credit line with existing customers and ensure that you can smoothly continue operating your business despite debt nonpayments.

Contact Niche Trade Credit Today

At Niche Trade Credit, we acknowledge that most businesses fail due to a lack of working capital and failure to recover money owed by debtors. We will reduce risks with our trade credit insurance solutions since we can easily flag issues before they get out of hand. Call (02) 94160670 to schedule a free consultation and learn more about how we can help your business with effective credit management.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

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What is a Trade Credit Claim

Trade credit insurance protects businesses from the financial impact that may arise in case a customer does not pay for goods and services or if there are payment defaults. It gives businesses peace of mind when extending trade credit to new customers. A trade credit claim helps you cover losses arising from non-payment.

Frequent bad debts can ultimately lead to business insolvency. Trade credit claims give you the confidence to grow your business despite offering goods and services on credit terms. With a trade credit claim, you can maintain your cash flow and protect the business’ bottom line in case of protracted default or customer insolvency.

How Trade Credit Insurance Works

When you purchase a trade credit insurance policy, you provide information about your customers and business. The information may entail your company’s recent loss history and a list of top customers. The trade-credit insurance company will evaluate the financial health of your customers to determine aspects like maximum invoicing period and credit limits to advance.

As with other insurance policies, there’s no one-size-fits-all situation in trade credit insurance. The cost and the level of coverage will depend on your business needs. Therefore, most trade credit insurance companies will tailor their insurance plans to meet your requirements.

Benefits of Trade Credit Claim

Protecting your business’ accounts receivables from credit risks is only one benefit of trade credit insurance. Additionally, the insurance coverage may help you:

  • Easily penetrate new markets
  • Enhance your company’s debt collection
  • Make appropriate business decisions while offering quality financial services
  • Increase creditworthiness with banks
  • Maintain your existing credit rating
  • Reduce expenditure from your debt management administration.

What Trade Credit Insurance Covers

Trade credit insurance can help manage commercial and political risks beyond your control. Depending on your needs, a trade insurance policy can either be:

  • Comprehensive– A comprehensive policy covers the entire credit portfolio for your company. In some cases, the coverage may extend to export customers, covering offshore political risks, pre-shipment risks, and post-contract repudiation.
  • Excess of Loss– Businesses with robust internal credit management strategies can obtain coverage for exceptional loss for the entire portfolio. Some of the options include meaningful aggregate deductible, non-cancellable credit limits, and discretionary credit limit flexibility.
  • Selective– The coverage is appropriate for businesses that require protection on critical accounts of their largest debtors. The selective (single buyer) alternative only protects the business against an individual debtor.

There are various limits on certain coverages, so it is essential to confirm with your trade credit insurance company first.

Who Should Consider Investing in Trade Credit Insurance?

Trade credit insurance is appropriate for any registered business selling goods or services on credit terms. They include businesses that trade locally and internationally. Some credit insurance companies may partner with debt collection agencies to ensure you can recover your debts without engaging defaulters directly.

Secure Your Business with Trade Credit Insurance from Niche Trade Credit

At Niche Trade Credit, we offer credit insurance solutions to enable you to trade locally and internationally without worrying about bad debts. Call us at (02) 94160670 today to discover how we can help insure your business and get a free credit risk assessment.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.