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.
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