Trade Credit Insurance Coverage in Action

Authorizing credit to your clients isn’t just a perk; you need to provide credit if you want to compete in today’s business climate. New customers expect it, existing customers need it, plus some of your competitors may already provide credit. So how can you compete to win?

Offering credit can provide many advantages, but it’s important to be careful because credit also has the potential to be disastrous for your business. Just one unexpected or unforeseen late payment or instance of customer insolvency can stress your organization’s cash flow and profitability. That’s where trade credit insurance can help you reduce your company’s risk.

Trade credit insurance—also known as credit or political risk insurance—helps businesses protect their accounts receivable against non-payment. Here is an example scenario:

Entering international markets

The company: A growing parts manufacturer

The challenge: In search of new revenue potential, a parts manufacturer wanted to expand its operations into markets in the USA and, in the future, the company planned additional expansion into Mexican and South American markets.

As a still-new company, it was challenging for the manufacturer to take on the risks involved in expanding into international markets. This became an obstacle to the company’s growth when an international buyer approached them to place a large order

While the purchase would have been the biggest in the manufacturer’s history, the deal fell through because the potential customer didn’t have enough working capital to make a cash payment upfront, and it was too risky for the manufacturer to extend credit to the prospect. Could you rescue this sale with better risk management?

How trade credit insurance can help: Without the right protection, every sale a business makes on credit typically is a decision by the company’s finance department based on their analysis of a buyer’s credit standing plus references.?To improve the analysis, timing, and decision-making processes for growing your business, you should insure your receivables against payment risk.

For the parts manufacturer, trade credit insurance could have provided more flexible payment terms for the new Canadian or international customer.

Benefits of trade credit insurance

Trade credit insurance can provide a much-needed safety net for businesses seeking to grow, allowing them to extend credit to more customers by reducing the risk. Benefits include:

• Improved sales. By offering customers and prospects more favourable credit terms, trade credit insurance can help businesses boost sales.
• Access to new markets. Trade credit insurers offer protection against unique export risks by providing businesses with the market knowledge to make informed decisions in foreign markets
• Insolvency protection and cash flow relief. Trade credit insurance protects organizations from the risk of a customer default, insolvency, or late payments on sales made on credit terms; losses can be indemnified, allowing the business to maintain its cash flow
• Reduced concentration risk. For businesses relying on a small number of customers, trade credit insurance mitigates concentration risks
• Accounts receivable support. Insurers can provide access to professional trade-credit analysts who can share best practices with a company’s credit department
• Collection services. Trade credit insurance typically offers solutions for cost-effective collection in cases of non-payment
• Bank margining. Ask your banker if they will include your trade credit insured receivables as a component of your borrowing base; this may add more capacity to your bank line of credit

Learn more about Trade Credit insurance

Often, accounts receivable represents a business’s largest and most important asset. Unfortunately, even the best customers can miss payments or file for credit protection if unexpected circumstances arise. If your customers are unable to pay what they owe, potential credit losses can present a substantial threat to your business, but we can help.

Does your business have the right protection for when you need it most? Contact a Cowan Insurance Group Trade Credit specialist to learn more about how trade credit insurance can protect your business.?As the Canadian member of the International Credit Brokers Alliance (ICBA), Cowan Trade Credit has access to all Canadian trade credit insurance carriers, with the global reach to support the best solution for your company’s needs.?