How does trade credit insurance work?,
A bad debt occurs when the money owed becomes unrecoverable, typically due to insolvency. The policy is designed to provide a safety net against unexpected losses but it can also help you avoid losses altogether. The insurer employs a team of analysts who review the credit profile of your clients and monitor financial information and payment experience to help you set credit limits. This can help you identify and avoid trading with businesses that are distressed. If an insured client becomes insolvent the policy reacts to ensure you get paid for the goods and services that you have supplied. The policy will cover up to 90% of the insured balance owing (minus your deductible) to ensure that your business can continue to operate with minimal disruption.
What claims are covered by trade credit insurance?
Standard cover can protect against insolvency and protracted default. However, you can also add protection for events such as political risk and orders commenced but not yet delivered (pre-delivery risk insurance). A policy can be structured to meet with the particular demands of your business and the territories in which you operate.
What are the benefits of insurance for trade credit?
A credit insurer becomes the eyes and ears on the ground for their client. They will check a prospective client’s stability, creditworthiness and reputation. Atradius, the insurer for Debt Protect has 160 offices in 50 countries around the world. Their combined underwriting team has live data on over 100 million businesses. Through their information, you can investigate the risk your customer’s credit terms pose to you.
If a customer fails to pay you, you have the protection of a policy to cover up to 90% (less your excess) of the outstanding amount to make sure that your business can continue unaffected. To make a claim for payment, all you have to do is log into the 24/7 online portal, complete the appropriate documents and your claim will be assessed by one of the insurer’s claims specialists.
Do I need credit insurance?
Some of the factors you may wish to consider when deciding if trade credit insurance is right for you:
Risk is an inherent part of credit based trade. Sometimes, it doesn’t matter how well you know your market and customers – insolvency and payment default are commercial realities. Despite sometimes knowing your buyers for many years, you can’t predict the future of their business. Almost every business has had a direct experience with a bad debt, and this impacts cashflow, profitability and confidence
The payments owed to you are often a large chunk of your assets. Your accounts receivable function is one of the largest assets on your balance sheet. Just as you insure other valuable assets such as your factory or your office property, you may want to consider the exposure that your outstanding payments pose to your balance sheet. Trade credit insurance can insure you against this risk.
Also, chasing non-payments can take up significant business resources. Credit insurance can allow you to maintain sales and reduce negative impacts of non-payment. This often frees up the time and resources otherwise spent chasing payments, to focus on growing your business.