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Understanding A Sample Trade Credit Insurance Policy

If you’re thinking about purchasing a trade credit insurance policy, you may have some questions about what’s covered.

If so, you’re in the right place. In this blog, we’ll consider a sample trade credit insurance policy, and discuss the different coverages that are available, what you can expect to pay, and more details.

Sample Coverage For A Trade Credit Insurance Policy

First, let’s discuss what events are actually covered by the trade insurance policy itself. Policies are designed to aid in risk management and ensure you can trade with confidence when extending a line of credit to a buyer, whether in international trade or domestic trade.

This is accomplished by insuring your accounts receivable from bad debts, and ensuring your cash flow remains stable and steady. They will pay out if:

  • A customer or client becomes insolvent, bankrupt, or otherwise is unable to pay
  • A customer or client becomes impossible to contact and does not pay, or a court judgment is issued against them

This helps ensure that you are paid for your goods and services issued on trade credit. Depending on your policy, you may be compensated for between 75-95% of the value of the debt.

In addition, many trade credit policies are also sold with political risk insurance. This type of insurance is similar, but it protects you from political risks such as:

  • The expropriation or seizure of your assets by a foreign government
  • Political violence (war, insurrection, terrorism, etc.)
  • Banking and currency conversion issues or inability to move currency to your country
  • Breach of contract or contract frustration by a government
  • Business interruption

Additional Benefits Granted By This Policy

One of the additional benefits granted by most policies is that, if you need to take legal action against a client who has not paid, these costs will be covered by your insurance policy. The cost of hiring a debt collection service and other related fees may also be covered by your policy.

Limitations Of Coverage

The specific limitations of your policy will vary, based on the policy you purchase. However, it’s important to note that most policies will not cover customer disputes which result in non-payment.

For example, if you deliver a $100,000 order to a customer, and they claim that the items were missing, damaged, or not satisfactory, and they do not pay, you cannot simply turn to your policy for compensation. You must engage in arbitration and negotiations with the customer, and go through the proper legal channels to resolve the dispute.

Trade Credit Discretionary Limits

When you purchase an insurance policy, your insurer will likely give you a discretionary limit. This limit outlines the maximum business credit limit you can issue to a customer without getting approval from your insurer.

In other words, if your discretionary limit is set at $50,000, you cannot sell goods on credit to a company in excess of that limit, unless you contact your insurer, and they perform a credit check and other necessary due diligence checks, and issue their approval for the transaction.

Understanding Premium Costs

Your premium costs are usually calculated as a percentage of your overall revenue. The most common rate is at 0.1 to 0.3 cents per dollar of revenue. So, if your business did $5 million in sales per year, you could expect to pay around $10,000 in insurance premiums.

This will vary based on if your business has a history of collecting bad debt, the companies with which you’re working, the average value of your transactions, and a number of other factors. Your own export credit insurance premium costs could be higher or lower than this number.

Need More Help Understanding Trade Credit Insurance? Contact Us Today!

If you’d like us to provide you with a sample insurance policy and walk you through the coverage you can expect in more detail, contact the team at Niche TC right away.

We can help clear up any questions you have about our trade credit insurance services – and our insurance brokers can help you find the right policy, tailor-made to your particular needs. Get started today, and 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 is Export Insurance, Who Needs it and Why?

Export credit insurance (ECI) is a type of trade credit insurance tailor made especially for exporters of goods and raw materials. International trade with foreign buyers is often a complex undertaking. Niche Trade Credit (NTC) offers policies with the export trade in mind. Payment risk associated with shipping raw materials and products to customers can represent a real danger to an otherwise well-managed import/export firm or similarly situated business.

There are several common reasons why payments for exports are not made. Our insurance product is specifically designed to hedge against these risks. ECI incorporates the value of our other offerings such as political risk insurance or trade credit insurance but limits the scope to exports. The coverage allows more versatility and specificity for those who wish to limit their exposure while controlling the costs. You can rest assured that the trust you place in a foreign buyer is well insured with NTC.

If you are considering exporting to a foreign market, NTC encourages you to consider some key points;

  • Does the buyer prefer to trade on open accounts or a documentary trading basis instead of a letter of credit?
  • How stable are the import and/or export licenses?
  • What is the likelihood of contract repudiation?
  • What is the probability for the rejection of goods?
  • Have you considered non-payment for reasons of government intervention associated with political risk?
  • What is the financial health, history and credibility of the importer?

Any one of these factors, among others, can spell disaster for an exporter. Shipments of products or raw materials often represent a concentration of capital. Depending on the complexity or rarity of the products, a supplier could conceivably be wholly depending on payment for a single shipment to remain viable.

Australia’s largest export is iron ore making it the world’s leading exporter at 58%. China leads the world for iron ore imports at 57.1 billion per year. The trend to export into markets subject to lacking infrastructure and alien regulations only serves to aggravate the risks. With prices of livestock flat lining globally, Asian markets represent an opportunity for growth as well. The danger to stable import and export licenses is historically high in this region. Ever changing regulations, politically motivated or genuine, also represent instability for exporters.

Export trade represents opportunities for growth in an ever more competitive global market. Failing to factor the risk has cost many companies more than they could afford. If you export to companies without letters of credit, we suggest you make a call to NTC as soon as possible to discuss a policy that is right for you. ECI does more than mitigate the risks associated with nonpayment, refusals and other threats to your accounts receivables. It is also a powerful sales tool helping to instill confidence in potential foreign trading partners. Additionally, ECI is often a prerequisite when seeking financing for export operations and related infrastructure. The key is to balance the risk and the cost expertly. Varying levels and types of specific coverage to successfully mitigate risk but remain highly profitable is a challenge we at NTC pride ourselves in meeting. The goal is to offer the minimum cost for the greatest risk mitigation.

The need and utilization of export credit insurance brokers is becoming more relevant each day. Policyholders for credit insurance are projected to grow in 2018 by 3.2%. Some of the reasons for the increased use of this product are clear;

  • It allows for competitive new account terms despite the risk of nonpayment by foreign buyers.
  • Reduced risk of non-payments equates to increased sales and market opportunity in volatile regions.
  • ECI can increase borrowing and lending capabilities for exporters doing business in foreign and emerging markets.

If you are an exporter the opportunities can be lucrative and numerous. Yet, the risk also increases with your export exposure. Our professionals advise exporters to keep the following checklist in mind to mitigate that risk;

  • Define the areas where you incur export risk.
  • Develop a risk management matrix by listing the risks and management strategies.
  • Discuss your risks and strategies with colleagues, financiers and NTC.
  • Review your export risk management profile regularly.

Export Credit Insurance by Niche TC

NTC is waiting to find the policy right for you. We consider many factors when proposing ECI. Our goal is to offer the best policy for your situation. These can vary by term length, risk, experience level of the exporter and more. The cost associated with ECI is often less than the price to secure letters of credit. Contact us today and we will work hard to craft the policy that best fits 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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Trade Credit Vs. Trade Finance: What’s The Difference?

If you’re working in the world of export finance, you may be wondering what the difference is between trade financing and trade credit – and what the advantages are of using trade credit rather than other trade finance options.

In this article, we’ll explore the definitions of trade credit and trade finance, and why trade credit is often the best way for smaller-scale importers/exporters to do business. Let’s get started.

Trade Credit Is A Subset Of Trade Finance

The first thing that you need to understand is that trade credit is not separate from trade finance. Rather, it’s a type of trade finance. The term “Trade Finance” refers to the innumerable ways that trade, both foreign and domestic, is accomplished by importers, exporters and other businesses.

Trade credit refers to the extension of short term credit to the exporter, or to the importer of goods, or any transaction where buyers and sellers extend short term credit lines to one another. It’s essentially a short term loan that’s interest free and does not involve any financial institutions, provided by whoever is selling their goods and services.

The common “Net 30” and “Net 60” invoice terms are a good example of this. Once the goods shipped and you’ve created a bill of lading, you can invoice your customer. Then, you can give an exporter time to pay for the goods they want to buy and export, on the basis of payment in 30 or 60 days, with a 2% discount if they pay within 30 days. This type of trade financing helps improve cash flow and working capital.

The buyer has the option to pay right away and save, or to wait, if they need to acquire more funds to complete the purchase. This flexibility makes trade credit an important part of the global supply chain, and the basis for most international trade transactions.

These transactions usually involve working with a credit agency to determine a potential buyer’s credit worthiness. If you’re an exporter, for example, and cannot determine a potential customer’s credit risk, you may ask the importer’s bank or the importer to prepay for the first several shipments of goods when they open an account with your company. Then, as they show the ability to pay on time, you may extend them a longer credit line.

Other Finance Options

Trade finance includes trade credit, but also a variety of other different ways by which an international or domestic trade transaction can be funded, such as:

  • Letters of credit – A letter of credit is a document issued by a bank or another financial institution, and given to a product seller, on behalf of the buyer, guaranteeing payment. If the buyer does not pay, the bank does – and the buyer owes the full balance of payment to the bank.
  • Bank guarantees – A bank guarantee is similar to a letter of credit. It guarantees that, in the event that either a buyer or a seller cannot fulfill their end of the bargain, the bank will pay the required dues, which helps defray risk.
  • Cash With Order (CWO) – In this method of trade, the buyer of any item or items simply pre-pays for their order with cash, at the time of purchase. This is a common transaction method between companies who do not yet have a business relationship.
  • Cash On Delivery (COD) – With COD, the buyer pays upon receipt of the items. This is rather rare in modern trade, for obvious reasons – the buyer could refuse to pay, not have the funds, and so on.

The Importance Of Insurance For Trade Credit Transactions

Compared to other methods of trade finance, trade credit is very simple and flexible. Giving a client an open line of credit makes routine transactions much easier – but without trade credit insurance, you could be exposing yourself to risk.

Essentially, trade credit insurance is a way to defray the risk of giving a company a line of credit. It’s a policy that guarantees that, in the event of protracted default or bankruptcy, your insured accounts receivable will be paid out, based on the compensation schedule laid out in your policy.

This way, even if your clients fail to pay for a shipment or for their goods, you can ensure that your cash flow and your profitability are protected – and that your company can continue to grow. Because of this, trade credit insurance is a very important part way to protect your company.

Learn More About Trade Finance & Trade Credit From Niche TC!

With over 15 years as a trade credit insurance broker, the team at Niche Trade Credit has seen and done it all. If you’ve got any further questions, we can help you gain a better understanding of trade finance and trade credit insurance. Contact us online now to set up an appointment.

*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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Credit Insurance Vs. Debt Protection: What’s The Difference?

If you have one or more credit cards or installment loans, or you are planning on taking out a new loan like a mortgage or car loan, you may want to consider investing in either credit insurance or debt protection.

While these financial products may seem similar, they actually have some significant differences, which can make one or the other a better choice in your own particular situation. Curious to learn more? In this article, we’ll discuss everything you need to know about the differences between credit insurance and debt protection.

NOTE: This information is purely informative, and not intended to be financial advice. Consider your own particular situation and financial means before taking out any kind of loan or insurance policy.

Credit Insurance – Covering Your Loans In Unexpected Situations

Consumer credit insurance is typically offered by life insurance companies. However, in some cases, it can be offered directly by a credit card company or another loan company. It comes in three common forms, each of which is distinct and has a different purpose;

  • Credit life insurance – This type of credit insurance covers the repayment of your outstanding debt, should you die unexpectedly. If you die, the debt will be cancelled altogether, and neither you nor any family members will be responsible for any additional payments on the debt. You will usually need to prove the death of the policyholder by providing a death certificate and other official documentation.
  • Credit disability insurance – This type of insurance helps cover the cost of your loan if you become disabled and cannot work. Usually, there is a waiting period of between 14-30 days before this insurance kicks in – during this time, you’re still responsible for making payments. In some cases, though, the benefit will be retroactive, so you may be compensated for these payments, if you’re still disabled after the waiting period has ended.In most cases, the money you will receive will be equal to the loan’s minimum monthly payment. However, this benefit will not be paid to you. Rather, it is paid directly to the lender – this means you can’t actually access this cash. It’s paid on your behalf to the holder of the debt, preventing you from defaulting.
  • Credit unemployment insurance –Similar to credit disability insurance, this type of insurance covers the minimum monthly payments on your debt, should you become involuntarily unemployed, and have difficulty finding new work in a timely manner. In most cases, you’ll have a 30 day waiting period before benefits begin to kick in. Again, some policies are retroactive, so after the waiting period, you may be compensated for the previous month’s payment.

This type of insurance is most commonly offered as a part of a mortgage, credit card, or a personal loan – and provided at the time that the credit contract is approved. However, some lenders do allow this type of insurance to be offered later.

It’s important to note that, in many cases, credit insurance policies have a maximum number of payment instalments – after which coverage ceases. There may also be a lifetime payment limit. If you hit this limit, no more payments will be made on your behalf. In addition, credit insurance may not cover the entire amount of a debt.

Consider a credit card, for example. If you become disabled, your credit insurance will make minimum payments on your debt – and it will continue to collect interest and grow, as long as minimum payments are being made.

Make sure you read the fine print when signing up for credit insurance, to make sure that the policy makes sense for your situation, and is a good financial choice.

Debt Protection – It’s Not Insurance, But It’s Similar

Debt protection is usually priced differently than credit protection, and it’s only issued by the holder of a loan. It’s a common feature on many major credit cards – other terms used to refer to debt protection include “payment protection” or “debt cancelation.”

If you opt for debt protection on a credit card, you’ll be charged a monthly fee, based on a percentage of your balance at the end of the month.

Like credit insurance, your minimum payments will be covered if you have a qualifying event – often job loss or medical disability. In some cases, the balance may be completely eliminated under specific circumstances, such as the death of the debtor.

It’s important to note that there are often more exclusions and other issues with eligibility, which are not always disclosed when you sign up for debt protection. Seasonal or part-time work, self-employment, are often excluded from job-loss benefits.

It may also be difficult to have your claim processed and approved. Debt protection is not an insurance product, so the companies who issue this benefit have much more flexibility and leeway when designing their programs, which can result in difficulties in claim processing.

If you do sign up for a debt protection program, it is very important to read through the terms and conditions before you sign up. You will want to understand exactly what benefits you’ll receive, the conditions and terms of the agreement, and any exclusions that may face you. You should also check the price to make sure that it’s reasonable – in many cases, the cost of debt protection may be much higher, compared to credit insurance.

Make The Right Choice For Your Financial Future – And Stay Covered!

At Niche TC, we’re experts when it comes to credit insurance services. So we encourage you to explore your options for insurance and debt protection – as well as other insurance instruments like life insurance – to make sure that your financial future is protected, and you’re covered in case of unexpected life events such as sudden death, disability and sickness, and loss of work.

*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 Structured Trade Credit Insurance?

With business failures on the rise, disruptions to your company’s cash flow can be devastating. If you’re in a market within the structured trade finance arena, it’s crucial that you’re able to reduce your risks and manage your cash flow. Structured trade credit insurance can protect your business from volatility and enable you to reach your goals. At Niche Trade Credit, we’ve been protecting our clients from debt and commercial risks with tailored, specific credit insurance policies. What is structured trade credit, and how can it accelerate your business growth? We’ll explore below.

What is structured trade finance?

Structured trade finance is a product that is primarily used in the commodities sector.

  • Traders
  • Producers
  • Processors
  • Industrial end-users

Structured trade finance is considered a specialised activity, and is dedicated to the financing of high-value commodity flows. Transactions are typically cross-border. Techniques between traders, producers, processors, and end users include the following:

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

Financing agreements are tailored to the needs of each client. Repayment of a structured trade financing transaction is made through the sale or the export proceeds of the commodity. It can be used to finance short-term or long-term capital expenditure for up to five years.

Markets within the structured trade finance arena include industries such as mining, energy, and also soft commodities. While businesses in any sector are at financial risk, borrowers of structured commodity finance tend to be less creditworthy than in other sectors. The reason that this form of trade finance is structured is that lenders will mitigate payment defaults by structuring payment terms between end buyers and lenders directly. As collateral, the lender will use letters of credit, shipping documents, and the commodities themselves.

Structured trade finance transactions are either pre-export or pre-payment. In a pre-export finance transaction, the buyer will enter into an export contract with the seller for the delivery of the commodity. A bank will provide a loan to the seller. The buyer will pay for the commodity to be delivered into a collection account. The collection account is released to the buyer through the bank after all agreed upon terms are met.

How does structured trade credit insurance work?

This policy and risk management product would cover the payment risks associated with the delivery of goods and services. Trade credit insurance will usually include a portfolio of buyers, and the policy pays an agreed percentage of a receivable or an invoice that is unpaid because of insolvency, bankruptcy, or a protracted default.

Businesses that purchase a structured trade credit insurance policy ensure that their accounts receivable is protected from loss due to nonpayment of a valid debt held by their debtors. Also, policies can cover losses that result from political risks, such as currency instability, a financial crisis, or war.

What are the benefits of this policy?

  • A policy transfers payment risks to the insurers. Their diversification of risk, financial strength, and expertise of the credit market make them more suitable to assume such risks.
  • Gives suppliers access to professional credit risk expertise.
  • Protects suppliers from liquidity shortages or insolvency from non-payment.
  • Insurance protects a significant portion of a supplier’s asset portfolio from loss.
  • Enables suppliers to extend credit to their customers instead of requiring an advanced payment, payment upon delivery, or secure letters of credit. This gives the supplier a way to compete in the global marketplace where buyers only use credit to purchase commodities.
  • Gives suppliers better access to improved lending terms from certain lending institutions, many of which will only provide financing if a supplier has an insurance policy.
  • Allows suppliers to cut out wholesalers and auction houses because they can accept direct buyer risk.

We’ve been working with numerous insurers in Australia for years, and we take pride in offering our clients excellent credit management services in the Sydney area. With our intimate knowledge of credit insurance policies, we’ll find the best coverage for your business.

With a structured trade credit insurance policy, you’ll protect your business from volatility and insolvency and increase your competitive edge in the global marketplace. Contact Niche TC today and see what our high-quality credit insurance services we can get for you.

*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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Difference Between Export Credit Insurance Vs. A Letter Of Credit

If you work in the world of exporting and international trade, and you are looking to safeguard goods shipped overseas to your buyers, you may be wondering if you should use a letter of credit, or export credit insurance.

Both of these methods can help minimize payment risks, and ensure that you are paid on time, based on the terms and conditions that you have signed with your foreign trade partner. So, what are the differences – and which one is right for you?

Find out by reading this article. We’ll discuss what you need to know, and how to choose between these two financial products, and ensure that your accounts receivable are safe from bad debt and default. Let’s get into it now.

What Is Export Credit Insurance? How Does It Work?

This is a specialised form of insurance that is typically used in international trade to protect accounts receivable when you extend trade credit to another party.

That is, trade credit insurance is intended to ensure that any invoice you send out to a customer will be paid, even if the customer defaults on the payment, or enters bankruptcy. Depending on your policy, you may be able to insure a single invoice or a single customer, or take out a policy that covers your entire accounts receivable.

The way that export insurance works is simple. If you deliver a shipment, goods, or services to a customer, and they do not pay due to bankruptcy, stop responding to you, or they default on their payment for any other reason, your insurance company will compensate you, up to the limits set by your policy.

You will usually receive between 85-100% of the value of the transaction from your export insurance policy. This ensures that, even if a sale does fall through and you are not paid by the buyer, your cash flow will not be affected, and your business can simply continue operation.

One thing to note is that most export credit insurance policies do have discretionary limits in place, which limit the size of your transactions. Transactions over a certain value must be approved by your insurer, via credit checks, and other checks to verify the legitimacy of a buyer.

What Is An Export Letter Of Credit?

An export letter of credit is another very popular way to safeguard your cash flow and ensure that you are paid by a buyer when your goods or services are delivered. Unlike credit insurance, export letters of credit are issued by banks.

A letter of credit is, essentially, a commitment by a bank to pay your company (the exporter), on behalf of the foreign buyer (the importer). When properly drafted, it is an extremely secure document.

Essentially, the document states that, provided that all of the terms and conditions stated are met (on-time delivery, quality of goods, etc.) the bank guarantees payment by the importer.

These documents are often issued by foreign banks, and can be “confirmed” by an Australian bank. Confirmation means that the letter of credit is not just backed up by the original bank – but also by the Australian bank.

The most common form is called an “irrevocable” letter of credit. This means that, unless both parties agree to a change, the document cannot be changed in any way. Revocable letters of credit may be changed, unilaterally, by either party – so they are much less useful as a legally-binding document.

Once issued, the letter of credit will be “called” as soon as your credit terms are met. For example, if your goods are delivered on “Net 30” terms, and must be paid for 30 days after delivery, the issuing bank will draw and send the funds to you exactly 30 days after the delivery of goods. This ensures that you receive payment in a timely manner.

What’s Right For Me? Export Credit Insurance, Or A Letter Of Credit?

This depends on a number of factors. For a larger transaction with a new customer, a letter of credit can be a good way to develop a business relationship – and make sure you get paid on time by their bank. However, letters of credit can be complex and expensive, and in markets and countries where banking institutions are not always the most reliable,  they may not be enough to guarantee payment.

Export credit insurance, however, will cover your costs for any default or bankruptcy on the part of your client. One benefit of this type of insurance is that, unlike a letter of credit, you don’t need the buyer to be involved in the process of developing and signing – meaning that you don’t need their consent. You can always insure your invoice, regardless of whether or not your customer is willing to sign a letter of credit.

To learn more, we recommend that you contact the team at Niche Trade Credit. We can clear up any other questions you may have, and ensure that you get the protection you need, either with a letter of credit, or a trade credit insurance policy.

*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 Political Risk Insurance? What Does It Cover?

Political risk insurance is a unique subset of private insurance, used to cover infrastructure developers, importers and exporters, and other such companies from financial loss, due to the forced abandonment of a project or a client due to political instability, such as government action, political violence, and other political events that occur in a foreign government.

Often, this type of insurance is bundled with trade credit insurance, which is a type of insurance that covers the costs associated with a customer not paying their invoices, due to default or bankruptcy.

Curious to learn more about political risk insurance and what it covers? Read on, and learn everything you need to know.

What Coverage Does It Include & Exclude?

The coverage that your insurance will offer depends on your insurance company, and your policy. However, as a rule, most companies in the insurance market will offer political and economic risk insurance for the following events:

  • Political violence – This includes things like armed revolution, insurrection, war and civil war, terrorism, and other such political instability that can stop a project or a sale to a foreign country.
  • Governmental expropriation or confiscation – Should your property or project be confiscated by the government, political risk insurance can be purchased that will cover the cost of this confiscation.
  • Government repudiation or frustration of contracts – Most of these policies include provisions that cover costs if a government claims that a contract cannot be carried out, or unforeseen events lead to contract frustrations.
  • Wrongful or improper calling of letters of credit –  If a government or foreign financial institutions wrongfully call in a letter of credit, or another on-demand guarantee, insurance can cover the associated costs.
  • Business interruption – The costs of business interruption during a political event or other unforeseen circumstances can be covered by a political risk insurance policy, ensuring steady cash flow.
  • Inability to repatriate funds or convert foreign currency – If banking and currency issues, such as hyperinflation or a ban on moving currency to foreign countries results in the inability for your company to be paid, your policy will likely cover these costs.

Though other types of coverage may be offered, these are the most common. Often, you’ll have the ability to choose between each type of coverage, or purchase a policy that includes coverage for all major political risks.

Why Is Political Risk Insurance Important?

Because it helps you ensure long term success when working in emerging markets. It’s usually not necessary when working in OECD countries, and with companies in very stable countries – but it’s absolutely essential if you want to expand your reach, and work in countries that are not yet fully developed.

In the rare case that political instability results in a serious financial loss, your insurance company will step in, and compensate you for these lost funds – which ensures that your business can survive, even if it loses some of its biggest customers. This gives you peace of mind when working with customers and companies in developing countries.

Learn More From Niche Trade Credit Now!

At Niche Trade Credit, we’re experts when it comes to trade credit and political risk insurance. We can ensure that you have the right policy, and are protected from any political risks in the countries where you sell your products or services. Get started by contacting us right away. Call 02 9416 0670.

*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 Insights During Covid-19

The outbreak of COVID-19 has had devastating impacts on countries all across the globe, bringing booming economies to a grinding halt. Unfortunately, many businesses have suffered and crumbled under the weight of the global pandemic. Even businesses not directly affected by the COVID-19 pandemic have felt the wrath through the domino effect, seeing disruptions to business cash flow, supply chain and movement of goods globally. There is no question about it, ensuring your business and its cash flow are protected is crucial, especially in times of great financial crisis like we are currently facing. Perhaps your business already has credit insurance and are unsure what is covered by your policy, or the current financial climate has highlighted the importance of credit insurance for your business. Regardless of what event has brought you here, credit insurers have had an influx of trade credit claims as a result of the pandemic. The trade credit insurance market has undergone drastic changes as a result of COVID-19. In this article we will dive deeper into these insights and what this means for you and your business.

COVID-19 Impact On Trade Credit Insurance

While we are certainly not out of the woods yet, companies are beginning their preparation to recover from the impact of the virus. As part of this preparation, many are seeking the advice from their credit insurers to identify what they are covered for and receive advice on the best way to maintain business continuity. The longstanding rules of the credit lending industry have shifted as a result of COVID-19 and the implications are being felt worldwide.

As a result of COVID-19 many insurers have opted to reduce their trade credit protection cover and introduce tighter credit limits and reductions. The pandemic has seen a significant rise in the amount of clients and customers unable to pay, citing COVID-19 as the reason. More customers are also seeking the assistance of other loan institutions to help their cash flow including increased payment periods and returning stock they cant sell. These risk mitigation actions ensure your business is able to recover from the economic effects of the global pandemic.

Tips To Protect Your Company

Review Your Insurance Cover

When facing such uncertain events, it is important to know exactly how your business will be protected against the unknown. Talk to your insurance provider and review all aspects of your policy to understand exactly what you’re covered for. Be sure you understand the wording of your policy and any exclusions there may be. It is also important to review the product disclosure statements available in relation to your policy. Your account manager is happy to resolve any queries you may have and ensure you have total confidence in your knowledge of your policy.

Compliance is equally as important as understanding your insurance policy. Ensure your company understands what is required to be eligible for the policy to be valid. Confirm with your insurer exactly what triggers your particular policy to allow a claim and understand the required timelines. Without compliance to your policy, you will be unable to make a valid claim and your business will be vulnerable.

It is also important to know the maximum extension period for your insurance account. This is the point at which your insurer must be notified that an overdue account could result in a claim. Full transparency between yourself and your insurer will allow you to assure your business is protected.

Communicate With Your Clients

The element of surprise is not always welcome, especially when it comes to unexpected disruptions to your cash flow. Ensure you are regularly communicating with clients and understand any concerns to cash flow or trading they may be experiencing. Identify any pressure points that may cause a delay or default on payment. Be sure you are aware of any issues that may affect you, and understand the flow-on effect for your business. Discuss any concerns with your insurance account manager and ensure you understand your business is covered. It is always better to err on the side of caution rather than be caught out by an unexpected event.

Moving Forward

The impact of COVID-19 has highlighted the importance of trade credit cover and insurance for businesses all over the globe. Regardless of the goods or services your business sells, it is crucial to be protected. Trade credit insurance is a valuable part of a company’s risk management strategy. While the internet is full of general information regarding credit insurance cover, it is for information purposes only. It is essential to discuss this directly with your insurance company to ensure your business is properly protected.

For premium trade credit and export insurance services, get in touch with Niche TC. We have helped hundreds of Australian businesses protect their bottom line with policies and covers matched to their specific needs and requirments. Give us a call today on 02 9416 0670 or get in touch through the website form.

*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

Credit Insurance and Binding Contracts

Credit insurance makes sure your business is protected in the event a client is unable to pay any credit debts they may have. Credit insurance policies are flexible and can be tailored to the specific needs of your business. Your individual policy can be modified to cover risks such as binding contracts and work in progress. Credit insurance is recommended for businesses of any size to ensure their cash flow is protected and to reduce their credit risk exposure.

Not all insurers offer credit insurance for binding contracts so it is important to ask your insurance brokers this prior to finalising your insurance. With that being said, the insurance of binding contracts is becoming more widespread within the insurance industry. Once a binding contract is signed, the underwriter can no longer reduce or cancel the agreed coverage. Credit insurance for binding contracts covers the event that the debtor becomes insolvent before the delivery of goods or services. Credit insurance may be offered for such contracts even after the withdrawal of credit limits.

When negotiating your credit insurance contract, it is important to discuss and explain all goods and services your business offers. This allows the insurer to determine which areas of cover you may need and the period of time you require coverage for. Niche Trade Credit offers credit insurance which covers binding contracts, political risk, bad debts and more. To view our full range of services, click here.

Talk to our experts today to ensure your credit insurance policy suits the needs of your business.

Is Credit Insurance Right For Your Business?

Credit insurance is an incredibly important way to protect your business and its cash flow, ensuring you are able to continue trading as usual should a client default on a payment. Credit insurance allows you to protect your accounts receivable and reduce credit risk. Credit insurance can provide you with the peace of mind knowing that your business is protected against the unknown. If your client fails to pay on the specified terms, you will be able to recover the money you are owed, up to the limit specified in your individual policy. While trade credit insurance can be extremely valuable, it is not right for all businesses. Keep reading to find out which businesses may benefit from trade credit insurance.

High Credit Risk Customers
If your business regularly trades with customers who have a high credit risk, trade credit insurance will be incredibly beneficial. Trade credit insurance ensures your business is protected against protracted default and allows you to recover the amounts owing up to your policy limit.

Protecting Cash Flow & Working Capital
For most small to medium businesses, any disruption to your business can have adverse effects. Trade credit insurance allows your business to be protected from events such as a customer defaulting on a debt or a major client entering bankruptcy.

Trading With Political Risk
While trading with developing countries can be lucrative, there are high risks associated. Political turmoil, central banking issues and upheaval are all very real and serious threats which could affect your business. Trade credit insurance can protect your business from these risks and allow it to continue to trade within these profitable markets.

Niche Trade Credit provides high quality credit management services in Sydney and specialises in risk management for Australian exporters and other companies who trade internationally. With over 30 years experience, Niche Trade Credit is regarded as the most dynamic and trustworthy Specialist Credit Insurance Brokerage in Australia.

Talk to our experts today and let us help you protect your business and its cash flow with trade credit insurance and political risk insurance.

*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 As Collateral

Trade credit insurance can be incredibly important for businesses wanting to protect their balance sheet and accounts receivable when trading goods and services on credit terms. This insurance protects a business if their customer cannot pay their debt in events including insolvency, non-payment, protracted default and political risks. This type of insurance policy essentially repays a credit amount (either partially or in full) to a business when a customer cannot pay their invoice.

Trade credit insurance may also be viewed and used as collateral by various lending institutions. The ability to use your trade credit insurance as collateral will depend on the specific lending institution and the type of insurance policy you have. Using your trade credit insurance as collateral can also be used to acquire additional working capital. As a result, trade credit insurance may also be used as a trade finance tool. For further information, contact your lending institution or insurer directly.

Who Should Get Trade Credit Insurance?

Trade credit insurance can be a beneficial risk management strategy to protect your business from the costs of a protracted default and strengthen your credit management. This form of insurance has many benefits, however it is not suitable for everyone. Learn more about this risk management tool now, and see why trade credit insurance may be the best way to protect yourself from bad debts.

Regular Trading With High Credit Risk Customers

If your business regularly sells goods and services on credit to customers who have a high credit risk, you will definitely benefit from trade credit insurance. Trading with customers with a high risk of default is not necessarily a bad thing. High risk in the trade world often means high reward. This is usually due to the fact that many firms refuse to sell goods or services to those with poor credit. Rather than setting credit limits, use trade credit insurance to ensure your business and it’s credit portfolio will be protected from protracted default.

Selling Goods Or Services On Credit

If your business sells on credit payment terms, you know that there is always the risk that your customers may not pay in time, or at all. Extending credit to businesses can be extremely beneficial as it makes it easier for them to purchase from you, and can increase your customer base. Trade credit insurance is a great way to counteract and balance the risk that your customers will be unable to pay on the agreed terms. If a customer is unable to pay or defaults on their purchase, your insurance policy will compensate you for the loss.

Trading In Developing Countries With Political Risks

Working and trading with developing countries can be extremely lucrative, however with such reward comes high risk. Central banking issues, political turmoil, upheaval and the sudden folding of private companies are common issues in developing countries. Using trade credit insurance can protect your business from these risks and allow you to continue to trade in these profitable markets.

Preserving Working Capital & Cash Flow

If you are running a small or medium business, the amount of working capital and cash flow you have will undoubtedly be less than that of a larger company. As a result, any interruption to your business can be detrimental. Trade credit insurance can protect your company from issues such as a major client entering bankruptcy or defaulting on a debt. Your insurer will help cover the cost of the unpaid debt, allowing your working capital and cash flow to be protected and preserved. As mentioned above, you may also be able to use your trade credit insurance as collateral to acquire additional working capital.

Learn More About Trade Credit Insurance From Niche Trade Credit Now!

If your business falls into any of the above categories, trade credit insurance will be extremely beneficial regardless of what other credit control measures you may have in place. It is extremely beneficial to the long term success of your business and can prevent bankruptcy, help companies manage credit and even present opportunities for business expansion in the global market. Trade credit insurance also allows you to reduce your business’ bad debt reserve and manage write-offs with more certainty.

Niche Trade Credit offers a wide range of credit insurance services including export credit insurance and political risk insurance.

For more information on trade credit insurance, speak to an insurance expert at Niche Trade Credit today on 02 9416 0670.

*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.