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What Is A Trade Credit Insurance Discretionary Limit?

February 1, 2022

Trade credit insurance is an insurance product that covers your business against the risk of non-payment due to bankruptcy or default by a buyer. Essentially, your account receivable is one of the most important assets, which can also be highly vulnerable to other people’s actions.

Trade credit insurance helps protect the value of your account receivables from export transaction risks. Such as bad debt, insolvency, or political issues – all of which could affect your company’s financial strength. As a result, your profitability and cash flow will be protected if, for example, a customer buys goods or services and fails to pay due to bankruptcy or other reasons.

In this case, your insurance company will step in and cover your entire loss. A common term you may have come across when deciding if a product is right for you is “discretionary credit limit (DCL)”. So, what is it, and how does it work? Read on for further information on DCL.

Discretionary Credit Limit – What Is It?

Generally, you must set a credit limit for insurance coverage to apply to a buyer. This is often established by receiving credit approval from your insurer. However, you can set your own credit limits if your coverage has a discretionary credit limit.

That said, a discretionary credit limit is the maximum credit limit you may establish without contacting your insurance company. If you’re interested in setting your own DCL limit, consult with Niche Trade Credit insurance group professionals. Our DCL enables you to qualify most of your buyers for insurance coverage without our approval and to the customer relationships that matter most.

What is the Purpose of a DCL?

The ultimate purpose of credit discretionary limits is to ensure that you do not give lines of credit to debtors more than the amount established in your insurance agreement without first obtaining approval from your insurer. When you get trade credit insurance, your insurer only agrees to cover a portion of the risk of your account receivables depending on aspects such as your transaction value, country of operation, and the average transaction value.

For these reasons, your business could be at a higher risk if it gives large lines of credit to buyers with a bad repayment history for example. Keep in mind that any transaction you make over the agreed-upon DCL without obtaining written consent from your insurer may not be included in your trade credit insurance coverage.

Can You Exceed Your Trade Insurance Discretionary Limits?

The simple answer is yes. At Niche Trade Credit, we allow you to exceed your discretionary limits as your business expands. We understand that as your company grows, your sales volume increases too. Therefore, when making a larger transaction, it’s advisable to contact financial professionals for invoice approval.

Subsequently, your insurance may also opt to increase your discretionary limit if your company has expanded and you haven’t filed any claims recently.

Need More Explanation About Trade Credit Insurance Discretionary Limits? Get in Touch

There are many reasons businesses fail. But the most noticeable ones include poor credit management and reporting and poorly managed account receivables. If you’re struggling with any of these problems, don’t hesitate to contact Niche Trade Credit for help.

We have over 30 years of industry experience and can handle virtually everything regarding trade credit insurance. Please contact us today and let our professionals help you find the most suitable trade credit insurance policy for your business.

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