Credit insurance coverage protects businesses from non-payment of commercial debt. It makes sure invoices will be paid and allows companies to reliably manage the commercial and political risks of trade that are beyond their control. It ensures that:
- Capital is protected
- Cash flows are maintained
- Loan servicing and repayments are enhanced
- Earnings are secure
While commercial credit insurance can be a smart investment for many companies, it may not be the best choice to companies that sell exclusively to governments or retailers since trade credit insurance only covers business-to-business accounts receivable.
A trade credit insurance policy allows companies to feel secure in extending more credit to current customers, or to pursue new, larger customers that would have otherwise seemed too risky. The protection it provides allows a company to increase sales to grow their business with existing customers. Insured companies can sell on open account terms where they may have previously been restrictive or only sold on a secured basis. For exporters, this can be a major competitive advantage.
It is also important to know what trade credit insurance is not. Credit insurance is not a substitute for prudent, thoughtful credit management. Sound credit management practices should be the foundation of any credit insurance policy and partnership. Credit insurance goes beyond indemnification and does not replace a company’s credit practices, but rather supplements and enhances the job of a credit professional.
How Does Trade Credit Insurance Work?
A strong trade credit insurance remains the most reliable way to deal with trade credit risk and avoid cash flow issues. It protects and accelerates your commercial development while controlling the risks that trade credit poses to your cash flow.
With trade credit insurance, you ensure that you are compensated quickly in the event of a bad debt, so your working capital ratio improves, uncertainty regarding your cash inflows is greatly reduced, and your bankers or shareholders can be reassured about the financial stability of your company.