Commercial buyers often request a credit to purchase large quantities of goods and services. However, suppliers who lend to these customers run the risk of not being repaid. If a customer files bankruptcy, often the creditor receives only a fraction of the amount it owes or none at all. This is especially true for unsecured debts where the creditor does not have collateral to back up the loan.
They can do so knowing that the debt will be paid back no matter what the customer’s financial situation. Insurance can help companies grow without taking on undue risks.
How Trade Credit Insurance Works?
The cost of insurance products reflects the risk the policyholder is taking to the insurer. To evaluate a business’s risk they look at many factors, including the volume of transactions that a client engages, the creditworthiness of its buyers, the industry it operates in, and the terms of repayments to which buyers have agreed. According to Meridian Finance Group, a specialist insurance brokerage, typically, coverage costs less than 1% of the insured volume.
Many businesses can scale up their insurance coverage to meet their budget and risk profile. They may be able to cover one client, especially if they have a high-risk account. Secondary coverage is also available on some policies that cover only the amount of the claim.
Insurance providers often assign a credit limit to each trading partner based on their financial strength. If the buyer fails to pay for goods and services, the insurer will not cover the losses beyond the indemnity limit.
This protection is especially valuable for companies that work in historically unstable regions such as multinational corporations or large hospitality chains.
Intelligence And Insight: Trade Credit Insurance gives you access to financial information from insurers regarding the financial health of companies with that you plan to do business. This information can be shared by insurers with policyholders. Your customers have an interest in ensuring that their suppliers can obtain trade credit insurance. They can also provide information about their trading activities to the insurers.
Legal Assistance: If a customer refuses payment to the insurer, the legal recovery teams can take over to recover any outstanding amounts. This prevents the need for costly “after-the-event” debt recovery companies. This could help you avoid a claim against your policy if the customer is still trading. The legal recovery teams of the insurers also have an understanding of how other legal systems work.
Export With Confidence: Insurance has offices around the world and can gather information and insight into foreign markets.
Reducing Risk: Customers could become bankrupt without your knowledge. Trade Credit Insurance helps you to manage that risk by providing cash flow relief in the event of a customer becoming insolvent.
Cost-Effectiveness: To make Trade Credit Insurance cost-effective, you would need to have a profit margin of 10% for each PS1,000 worth of bad debt.
Avoiding Problems: There are many problems that companies cannot foresee. Trade Credit Insurance is a great way to prevent these problems from happening.
Finance: Banks are more likely to consider businesses that have Trade Credit Insurance. They can also provide additional funding to help with growth plans. Trade credit insurance is a great option if you’re considering invoice financing. It can give your finance company the additional security they need.
Boosting Sales By Using Trade Credit Insurance: This insurance allows customers and prospects to get more favourable credit terms and limits. This could have an immediate impact on your sales performance.