Insurance protection
Trade credit insurance: a variety of benefits
The importance of building resilience against credit risk cannot be overstated in the current economic environment. Few thriving businesses function in isolation — their success can be significantly affected by the collapse of companies they depend on or engage with. This is especially true given the increasing number of insolvencies across the globe.
Despite best efforts and practice for mitigating risk and improving internal controls, companies cannot become invulnerable to credit risk. Trade credit insurance provides businesses with an invaluable layer of security and support. Beyond protection against default and non-payment, trade credit policies can offer various benefits to businesses, these include:
Non-payment protection
Businesses may fail to pay due to insolvency, refusal, or an inability to pay under the terms of the contract. If a customer fails to pay, a trade credit insurance policy can indemnify any losses stemming from this and protect businesses from the “domino effect” that such a non-payment can trigger — reducing the potential fallout associated with non-payment.
Debt recovery
Recovering unpaid debts can be a costly and time-consuming process — especially for non-payment linked to international trade. Trade credit insurers often provide debt recovery services as part of their service offering — saving insureds time and resources.
Credit intelligence
Trade credit insurance can provide information surrounding the creditworthiness of customers — enabling more informed decisions when issuing credit and limiting exposure to bad debtors. Credit insights are not limited to domestic markets, insurance specialists may have access to global networks for an unrivalled visibility into trends affecting international trade.
Better borrowing rates
Trade credit insurance can enable businesses to access more favorable borrowing terms with creditors — imperative for future growth objectives. This adds strength for businesses negotiating with lenders. As a company de-risks and consolidates its security, it subsequently becomes more attractive for financiers.
Enhancing working capital
The protection trade credit insurance affords against late or non-payment can help improve cash flow by making income streams more predictable. Potentially, this allows businesses to release cash reserves that were acting as a safety net against bad debts. Reallocating resources for growth can facilitate business expansion and increase confidence in exploring new markets without fear of significant financial loss.