How can you protect your business with trade credit insurance?

1 What is trade credit insurance?

Trade credit insurance, also known as export credit insurance or accounts receivable insurance, is a form of business insurance that covers your invoices from non-payment by your foreign buyers. It can cover up to 90% of the invoice value in case of default, insolvency, bankruptcy, or protracted default (when the buyer fails to pay within a specified period after the due date). It can also cover political risks, such as war, civil unrest, currency restrictions, or confiscation of goods, that may prevent you from receiving your payment.

2 How does trade credit insurance work?

Trade credit insurance works by transferring the risk of non-payment from you to the insurer. You pay a premium to the insurer, based on the amount and quality of your exports, the countries and sectors you trade with, and the credit terms you offer. The insurer will assess the creditworthiness of your buyers and assign them a credit limit, which is the maximum amount they will cover for each buyer. You can then invoice your buyers and ship your goods, knowing that you are protected in case they don't pay. If your buyer fails to pay within the agreed terms, you can file a claim with the insurer and receive compensation within a short time.

3 What are the benefits of trade credit insurance?

Trade credit insurance can offer many advantages for your import/export business, such as improving cash flow and liquidity by lessening the danger of bad debts and write-offs. It can also bolster your credit management and collection processes by giving you access to the insurer's knowledge and information on your buyers. Moreover, it can help you extend your sales and market opportunities by providing competitive credit terms and enabling you to enter new or risky markets with assurance. Additionally, it can secure better financing options from banks and lenders by using your insured receivables as collateral. Finally, it can protect your reputation and relationships with your buyers by preventing legal disputes and preserving goodwill.

4 How to choose the right trade credit insurance policy?

Trade credit insurance policies can vary in terms of coverage, cost, and conditions, so you need to compare different options and find the one that suits your business best. When choosing a policy, consider the scope of coverage, the level of coverage, the premium rate, the credit limit, and the claim process. These factors will determine how much of the invoice value is covered, what types of risks are included or excluded, how much you have to pay for the policy, how the insurer determines credit limits for each buyer, and how long it takes to file and settle a claim. Trade credit insurance can be a valuable tool to protect your import/export business from uncertainties and challenges. With the right policy, you can reduce your exposure to non-payment, improve your cash flow, and grow your sales with peace of mind.