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.
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