Trade Credit Insurance Questionnaire: The Most Frequently-Asked Questions (FAQs)
As experts in trade credit insurance, the team at Niche Trade Credit can help you get all of the information that you need to purchase a policy – and protect your accounts receivable and short-term profits if one of your customers goes bankrupt or defaults on their debt.
Got questions? We’ve got answers. Check out a few common FAQs about trade credit insurance now.
What’s Covered Under Trade Credit Insurance?
Trade credit insurance is intended to protect you against bad debt, and the risk that your buyer does not pay, or pays very late. Typically, this means that the buyer has been declared bankrupt or insolvent. In most cases, you are also covered if a customer skips out on payment and is no longer possible to find, or a court judgment is issued against them.
Note that, in most cases, trade credit insurance will not protect against buyers who dispute a shipment or a transaction – by claiming that the contract has been violated, or that the goods or shipment were delayed, or damaged upon arrival. It is only designed to protect against non-payment after successful delivery of goods or services.
What Percentage Of Debt Will Be Covered By My Policy?
Typically, somewhere between 70-95% of the debt that you are owed will be paid out to you by your trade credit insurance policy. The specifics of this depend on your policy, and may be higher or lower, depending on what you agree to when purchasing your insurance product.
How Much Does Trade Credit Insurance Cost? How Is The Cost Determined?
The most common range is between 0.1 to 0.3 cents on the dollar, for every invoice or buyer who is covered by the policy. That means, if your business made $10 million per year, your average premium would be somewhere around $20,000.
However, this can vary based on factors like:
- Creditworthiness of your customers
- Percentage of debt that is covered by your policy
- The countries and areas in which your business operates
To get an accurate quote, we recommend you partner with an insurance broker like Niche Trade Credit.
Can I Insure A Domestic Transaction, Or Just Foreign Transactions?
Trade credit insurance is usually used to insure foreign transactions, as it’s harder to obtain court judgments and pursue bad debt across state boundaries. However, it can also be used to insure domestic transactions, if necessary.
What’s A “Discretionary Limit?”
This term confuses many people who shop for trade credit insurance. Essentially, a “discretionary limit” is a way for your insurance company to mitigate risk.
If you have a policy with a discretionary limit of $100,000, you cannot sell more than $100,000 of items to a customer without telling your insurance company. Then, they will conduct credit investigations to determine if the transaction should be allowed. If approved, you may proceed. All transactions under $100,000 would not need approval.
This is simply a way for the insurance company to defray risk, and ensure that you are not extended large lines of credit to companies who have not proven their ability to pay.
Want To Learn More? Contact Niche Trade Credit Today!
Our team has been working in the field of trade credit insurance for more than 30 years. As a leading insurance broker, we can explain every detail about these policies – and answer any further questions you may have. Contact Niche Trade Credit now, and get in touch with one of our experienced trade credit insurance brokers.
*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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