What Are The Different Types of Trade Credit Insurance Policies

While cross-border trade can be beneficial to businesses, it isn’t without risks. Trade credit is one of the risks that companies must address as part of their planning process. So if you are into international trade and looking for ways to protect your business activities, you’ve come to the right place.

Below, we’ll discuss what trade credit insurance is and highlight the different types of trade credit insurance policies available for your business.

What Is Trade Credit Insurance?

Trade credit insurance is a form of insurance policy that protects your business from the risk of nonpayment from customers. It protects your business from potential losses due to customers’ inability to pay for products and services either because of insolvency, bankruptcy, or political unrest.

This insurance policy can help your business stabilise its cash flow, protect capital and profits, and mitigate the risk of bad debt. If you are engaged in cross-border trade, there are different types of trade credit insurance policies you need to understand.

Different Types of Trade Credit Insurance Policies

Whole Turnover Policy

The whole turnover credit insurance policy is designed to protect businesses against customer insolvencies. It typically covers your business receivables up to a certain amount and can reimburse your business if the customers fail to pay the invoice. It can also provide coverage if a customer opts out of business.

The whole turnover policy provides added protection of a credit insurance policy, allowing your business to be more confident in giving customers larger credit limits and terms. By having this policy in place, you can be assured that you will be reimbursed for any outstanding debts, which can help improve your cash flow and liquidity.

The credit terms for this policy are based on perceived risk, often influenced by the track record of your account and political risks, among other factors. Higher accounts receivables usually attract higher insurance premiums.

Key Account Policy

This policy is designed to protect a business’s key accounts and covers a specific segment of customers. It can cover your business against various risks, including bankruptcy, insolvency, and more. This means you can recover any losses incurred due to a client’s inability to pay for goods rendered.

A key account credit insurance policy is essential as it can help safeguard your business from bad debt losses and offer a financial cushion in the event of client insolvency. It also enables you to manage customer credit risk safely and efficiently by providing comprehensive information on customer creditworthiness. With a key account policy, you can also increase profits by optimising credit terms given to customers.

Single Buyer Policy

A single-buyer policy provides nonpayment coverage for a single buyer against losses caused by the customer’s inability to meet their payment obligations. It usually covers a broad range of credit risks, such as insolvency, nonpayment, bankruptcy, contract disputes, and more.
The good thing about a single buyer trade credit insurance policy is that it can be tailored to the specific needs of the customer to cover exceptional losses incurred by your business in the event of customer default.

Which Is The Best Trade Credit Insurance Policy For My Business?

The type of trade credit insurance policy you choose for your business will depend on the kind of customers you have, your risk tolerance, and the size of your business. It’s strongly recommended that you consult an experienced broker to determine the best policy for your business.

Contact Niche Trade Credit for Help

Niche Trade Credit is one of Australia’s most applauded credit insurance brokers specialising in trade credit insurance policies. Our professionals will help you choose and implement the best approach to protect your business. Contact us today for a free consultation and learn more.

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