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What is Trade Credit Insurance?

Companies that sell products or services on credit terms are deemed as providing trade credit. This is applicable to both international and domestic sales where the buyer is part of the risk of doing business. In essence, Trade Credit insurance protects you from non-payment from the buyer. This can be caused by a variety of circumstances, including commercial or political events such as insolvency or protracted default. Disruptive political events such as wars, embargoes and currency inconvertibility can also lead to non-payment on overseas transactions.

What does Trade Credit Insurance cover?

In simple terms, Trade Credit provides coverage when a customer either becomes insolvent or does not pay its debts after a certain period (which is set out in the insurance policy). Essentially it protects against the following:

  • Unforeseen credit losses in accounts receivable
  • Insolvency 
  • Protracted Default
  • Political risks (government moratorium, contract frustration, discharge of debt, war, transfer, public buyer default)

What are the benefits of a Trade Credit policy?

There are a wide range of perks that comes with a Trade Credit policy. Below are some of the advantages:

  • Sales Expansion: Increase sales by allowing larger credit limits and more liberal payment terms 
  • Enhance Asset Valuation: Get up to 90-95% coverage on your accounts receivable 
  • Improve Profitability: Reduce earnings volatility related to bad debt expense 
  • Increase Working Capital: Reduce bad debts reserves and transfer the amount to your working capital 
  • Enter New Markets: Mitigate emerging market political risks on international sales 
  • Credit Enhancement: Replace your buyer’s credit rating with “A+” rating of your insurer
  • Access to Financing: Obtain better terms and borrowing capacity on your credit facilities from fi nancial institutions by including export sales and alleviating buyer risk concentration issues. 
  • Risk Transfer: Transfer nonpayment risk on your accounts receivable to the insurer
  • Second Opinion: Enhance your credit risk decisions with a valuable second opinion

Why is Trade Credit Insurance important?

Trade Credit insurance provides protection against demand fluctuations, natural disasters, harsh economies and customer non-payment. The risks of non-payment are greater than ever and disruption in cash flow can affect your business obligations, such as expanding markets geographically.

Who needs Trade Credit Insurance?

Who needs Trade Credit Insurance

How much does a Trade Credit policy cost?

There are a number of factors that insurers take into account when determining the price of a Trade Credit policy. The factors are as follows:

Turnover - The most important element in determining the price. 

Trading History - Although a poor trade history does not necessarily increase the cost, should your track record with partners, suppliers and receivables history be exemplary, it can lead to lower premiums.  

Market outlook - Market outlook and future demand can depict future stability. A stable outlook is less risky, which may help minimize the cost of a trade credit policy

Sector - The overall market volatility, seasonality and outside market influences in the industry you do business with will be considered when determining premium cost.

Credit Terms - Both the amount of credit extended and the repayment terms will play a part in determining the price of the policy. A compelling benefit a Trade Credit policy possesses is that Trade Credit agencies will provide expert analysis in terms of how different amounts of credit impact your overall exposure.

 Customer Ratings - Your main customers will be evaluated based on their credit-worthiness and trade history. This evaluation is based on publicly available information and thus is probed in incognito.

Countries - The state of the infrastructure, politics and international conflicts in the nations in which your customers are located can influence the policy pricing

Policy Structure - Different organizations have different needs and therefore the construction of each policy is tailored to those requirements. Coverage is based on modules or building blocks, and these modules have varying levels of risk which affects the price of the policy

Claim Examples

In an attempt to expand its market, a premium fruit juice company exported its products to another country. However, it never received the payment and the insurer was informed promptly. The risk was transferred to the insurer and the non-payment was paid by the insurer accordingly.


Still in doubt?

A company once wanted to expand sales from its current customer base but was not comfortable increasing its credit limit. Instead, it used trade credit insurance in order to cover the higher credit limits. This minimized the credit risk offered to customers, and generated an increase in revenues and profit.

Important Disclaimer

The content provided is for informational and educational purposes only. The coverage written may not be applicable to all situations and policies. Terms, conditions and qualifications are also subject to circumstance and supplementary material. For more information, please contact us via the enquiry form below.
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