What is Structured Trade Credit Insurance?

June 17, 2022

Structured trade credit insurance is essential for investors, financial institutions, and corporates operating within the highly volatile, structured trade finance landscape. It helps regulate credit default risks, particularly those linked with economic crises, non-payment for trade receivables, and political risks.

It can also improve credit risk management by harnessing risk monitoring, credit information, and debt collection services offered by insurers. With trade insurance, your company can provide more open credit to clients and enter new markets.

Trade credit insurance allows organisations to secure better financing terms by using the insured accounts receivable as collateral while helping support securitisations, credit programs, and receivables purchases. At Niche Trade Credit, we can help design and coordinate your credit and risk strategies to build a robust insurance program.

What Is Structured Trade Finance?

Typically, structured trade finance is a transactional funding product that enables a seller to source commodities on the strength of their customers using confirmed orders. It bridges the gap between the supplier demanding payment up front and the buyer providing a confirmed purchase order.

It is commonly used by traders, processors, producers, and consumers in the commodities industry. Structured trade is focused on financing valuable commodity flows in cross-border transactions. Techniques used include:

  • Tolling and processing
  • Reserve based lending
  • Warehouse financing
  • Borrowing based financing
  • Pre-export

In most cases, financial agreements are customised to meet each client’s unique needs. Payment of structured trade financing is based on the sale of the commodity and can be used to fund short- or long-term capital spending for up to 5 years.

The concept behind structured trade finance is that lenders are able to mitigate payment risks by structuring payment terms between two transacting parties. In structured trade finance, the lender can use various items as collateral, such as shipping documents, commodities, and letters of credit.

Structured Trade Credit Insurance – How Does It Work?

As a credit management product, trade credit insurance protects your business against payment risks related to the delivery of products and services. It serves as risk insurance that covers a portfolio of buyers with the policy covering an agreed amount of an invoice or a receivable that’s defaulted due to bankruptcy, protracted default, or insolvency.

When you purchase structured trade credit insurance, you can be sure your accounts receivable is entirely protected from non-payment loss arising from debtors’ debt. Claims payments from trade credit insurance can help enhance cash flow uncertainty.

What Are the Benefits of Structured Credit Insurance?

  • It protects suppliers from liquidity shortages from non-payment
  • It gives suppliers the ability to accept direct buyer risk
  • It provides suppliers with professional credit risk knowledge
  • Structured credit insurance protects a significant part of suppliers’ asset profile from loss.
  • With this insurance, suppliers can extend offer credit to their customers by asking for advance payment or secure letters of credit.

The team at Niche Trade Credit is adequately equipped and ready to handle any issues you may be facing regarding structured trade credit insurance. We will work with you to design a tailored program and adapt risk insurance to match your business needs. Get in touch for more details about our superior credit insurance services.

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