What does Trade Credit Insurance mean and how does it work

Trade credit insurance is a risk management tool that protects your business from bad loans.

It ensures your receivables. It also protects your business against unpaid invoices that result from customer default or bankruptcy. Credit insurance covers both domestic and export customers. You can tailor the coverage to meet your requirements.

Trade Credit Insurance is also known by the following names: Export credit insurance, debtor insurance, and accounts receivable Insurance. You can download our Terminology Guide below to learn more

How does Trade Credit Insurance work?

No matter how careful and organized you are, sometimes customers will not pay. If you do not demand payment upfront or are protected by credit insurance coverage, you could be in bad debt.

Can your company afford to take on bad debts?

Trade credit insurance protects cash flow. It protects your transactions with customers and ensures that you are paid even if they default or go under.

Trade credit insurance covers you against the buyer not paying. Therefore, each invoice with this client is covered for as long as the policy lasts.

This insurance is used by all businesses to protect international and domestic trade. Credit insurance can be used by companies to protect their working capital and finances, attract new customers, and explore new markets.

There is no universal approach to insurance. Your specific needs will determine the price and amount of your credit insurance. You will need to consider the size and cost of your credit insurance, as well as the risk you take from customers. Trade credit insurance solutions can therefore be customized to your specific needs.

Operating Your Credit Insurance Policy

Step I – Agree on credit terms and conditions with your customer and the insurer

Your trade credit insurer should monitor your customers’ and potential customers’ financial status and apply a risk ranking, also known as a buyer rating.

This is their assessment of the likelihood of your customers paying your invoices promptly. This will determine how much of their exposure they are willing to insure.

You also have the option to use the buyer rating. You can use the buyer rating to guide your diligence and avoid dealing with potentially dangerous customers. Posh credit terms can also be used to secure potential buyers with a strong buy rating.

STEP II- Trade with confidence

Go on doing business as normal. Some insurers may not support you. Some will continue to support you.  Trade Credit Insurance can share the market knowledge and expertise of our underwriters via regular trading reports, sector analysis, and other means.

STEP III-  Deal with an unpaid invoice

Not paid? Let your insurer know. Insurers will usually first attempt to recover the debt. The ideal approach is amicable. You may find that your customer needs extra time to pay, or they want to renegotiate the terms of payment.

If your insurer offers debt collection services as part of your insurance package, they will initiate collection procedures. In this instance, your insurer will handle the collection of debts for your customer who has become bankrupt.

If it’s impossible to recover the debt, your insurance company should pay following your policy. Often, up to 90%. You should get the entire amount owed to you, through insurance or debt collection.

This type of insurance can help you protect your receivables from potential bankruptcy. But that’s only one benefit. It can protect your business against the risk of insolvency.

As potential buyers are attracted to your credit terms, you can increase your customer base

Enhance trade will give you the confidence and ability to expand your market.

Secure cash flow to help you build strong relationships and trust with your suppliers.

Enhance communication and credit terms to protect customer relationships

You can improve your access to financing and your relationship with you bank

Take care of the risks of your stakeholders or boards and ensure peace of Mind

Credit insurance might be tax-deductible and you may be able to use it as a business service. This can be a requirement by your management board. If you are looking for financing from banks, it could prove to be a valuable asset. Credit insurance is available for all businesses.

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