Trade credit insurance coverage protects businesses from overdue payment and 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 debtor 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.
Additionally, trade credit insurance is a pivotal tool for credit risk mitigation. As businesses navigate the complexities of global trade, ensuring that their interests are safeguarded against possible defaults is paramount. Through trade credit insurance, companies fortify their defense against unexpected insolvencies, offering an extra layer of security in their commercial engagements.
It is also important to know what trade credit insurance is not. Trade credit insurance is not a substitute for prudent, thoughtful credit management. Sound credit management practices should be the foundation of any trade credit insurance policy and partnership. Trade 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.