How Trade Credit Insurance Works: Breaking Down The Basics

December 31, 2018

How Trade Credit Insurance Works: Breaking Down The Basics | Niche Trade Credit Sydney

Trade credit insurance is one of the best risk management tools to protect your accounts receivable. When you sell goods or services on credit terms, you always take the risk that your customers may not be able to pay. In these cases, debt collection can be time-consuming or nearly impossible.

So, how can you protect your bottom line when extending trade credit? With trade credit insurance. Learn more below.

What Is Trade Credit Insurance?

Essentially, a trade credit insurance policy allows you to insure a particular invoice (or multiple invoices). Then, if the invoice is not paid in time, due to a covered issue like protracted default, you can get your insurance to cover the cost of your goods and services.

With trade credit insurance, credit risk from customers who do not pay for their goods is reduced dramatically. Customers who fail to pay will not affect your bottom line, nor will unpaid invoices, as long as they’re covered by your policy, within reasonable credit limits.

This protects your cash flow and protects your business, and helps you avoid bad debts. You can trade with confidence, even with new potential customers in areas where political risks or other issues could pose a risk to their creditworthiness.

How Is A Trade Credit Insurance Policy Issued And Redeemed?

Wondering how trade credit insurance fits into your credit management processes? Here is a basic guide to how these policies work.

  • Get a trade credit insurance policy – You can choose to cover a particular invoice or customer, or to get a policy that protects all of your accounts receivable, and pays a certain percentage of each account, should the customer default.
  • You sell goods or services on credit terms – You find a customer, sell your goods, and grow your business, just like you normally would. Your customers and clients pay you, based on the terms you’ve laid out while extending trade lines of credit.
  • Unpaid invoices are covered by your insurance policy – If a customer fails to pay, due to insolvency, political issues, or protracted default, your insurer will pay you the agreed-upon, set percentage of the invoice.
  • You get the working capital you need to continue business – Because you can recoup most of the money lost by your customer defaulting on their order or shipment, you can still keep your company in business, and ensure that you have plenty of working capital to pursue new clients.

The cost of your trade credit insurance varies, based on how many invoices you’re interested in covering, the maximum credit limit for each company, the percentage of the invoice value you’d like to insure, and a number of other coverage factors.

If you’re interested in seeing how much a trade credit insurance policy will cost you, we’d recommend contacting Niche Trade Credit right away. Whether you’re a small importer/exporter, or part of a large multinational company, we can provide you with a policy that’s right for you.

Protect Your Bottom Line With Trade Credit Insurance

Trade credit insurance is an extremely valuable tool for those who work with overseas companies, or any company that may be in a volatile area, who may be unable to pay for your goods and services. By protecting your accounts receivable, you can ensure that a single financial loss will not ruin or damage your company – and you can continue to expand.

Find out more now by visiting Niche Trade Credit, and see how you can protect your business with trade credit insurance services

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