How does Trade Credit insurance work?

What is Trade Credit?

Trade credit in a B2B business environment is a known practice. Companies carry out business on credit which involves the seller offering a time period to the buyer to make the payment. For example, if company A orders 1 Million worth of goods from company B, the payment terms could be such that company A has to pay within 60 days of receiving the ordered goods. This arrangement between the two companies is generally known as #tradecredit . This trade credit differs from client to client depending on the supplier and customer’s length of relationship, #demand and #supply of the goods being traded, the relationship between both the owners or promoters, and many more aspects that decides the trade credit terms. Some of the credit terms between suppliers and customers are - open credit, partial advance and balance upon receiving the goods, partial advance and the balance after 30/60/90/120 days to name a few.??

What is Trade Credit insurance?

Trade credit insurance is to protect the interest of the seller. In case their customer defaults or the business is bankrupt and the client is not in a position to pay off the existing payables, suppliers can make use of the #creditinsurance policy to protect their receivables as the insurance company will pay the dues on behalf of their client. This gives confidence to the sellers to explore new clients' new markets and hence creates new opportunities to scale up their business/sales. Companies with trade credit insurance in place will also have an advantage while borrowing from various lenders as the lenders see this as a proactive measure taken by the borrower/management to protect their receivables. Every company with trade receivables can make use of this credit insurance to protect their receivables.

Trade credit insurance policies can be either flexible or strict, but what matters is that customers and suppliers must know the clauses before purchasing one. Also, a company should be adequately insured, the insurance policy should be able to either cover the entire portfolio or just a percentage of your receivables. While buying trade credit policies, a company must ensure that it is protected in case of non-payment, bankruptcy, insolvency, or bad debts.

How can a company ensure that it is purchasing the most suitable trade credit Insurance?

There are many UAE-based corporate debt advisory firms in place run by senior bankers with hands-on experience and understanding of the borrower's and lender's requirements. They understand the dilemma of both parties. They know what lenders in their network are looking for and how a harmonious relationship can be built between a borrower and a lender and a credit insurance company. Corporate advisory services firms www.amnacapital.com can help borrowers in selecting the most suitable #tradecreditpolicy and in structuring a tailor-made facility in line with their business model and also help them avail the same from their local and international lenders pool. They understand what it takes and what are the most beneficial services a company can avail concerning its current financial status and requirement.?

Consulting with experts at amnacapital - One-stop solution for SMEs & Corporates based in the UAE that provides seamless corporate debt advisory services to potential borrowers.