What is Trade Credit Insurance

Trade Credit Insurance

Trade credit insurance protects your business against unexpected commercial risks.

Trade credit insurance – also sometimes called accounts receivable insurance – protects businesses when a customer fails to pay a trade debt. 

This often occurs when a customer becomes insolvent or is unable to pay within the contracted terms (a protracted default). Credit insurance indemnifies a proportion (up to 95%) of the debt owed to you. 

Additionally, trade credit insurance provides world-class knowledge and data to empower your trading decisions. This helps businesses that choose trade credit insurance to avoid more bad debts and safely expand sales to new and existing customers.

There are four types of trade credit insurance, as described below. The cost of your policy will vary depending on the type of coverage you choose, your industry, your annual revenue that needs to be insured, your history of bad debts, your current internal credit procedures and your customers’ creditworthiness, among other factors.

Whole Turnover – This type of trade credit insurance protects against non-payment of commercial debt from all customers. You can select if this coverage applies to all domestic sales, international sales, or both.

Key Accounts – With this type of insurance, you decide to insure your largest customers whose non-payment would pose the greatest risk to your business.

Single Buyer – If most of your transactions are with one customer, you can select a trade credit insurance policy that insures against potential default from just that customer.

Transactional – This form of trade credit insurance protects against non-payment on a transaction-by-transaction basis and is best for companies with few sales or only one customer.

 

It is also important to know what trade credit insurance is not. Credit insurance is not a substitute for prudent, thoughtful credit management. Sound credit management practices should be the foundation of any credit insurance policy and partnership. 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.

Trade credit insurance only covers business-to-business accounts receivable from commercial and political risks. Outstanding debts are not covered unless there is direct trade between your business and a customer (another business).

Every business can benefit from good credit management.  Trade credit insurance is one of the most important tools for that purpose.  If you’re selling on open account terms to other businesses then trade credit insurance could bring many benefits.  Even if you trade on other terms we have services that can support and strengthen your trading activity.

We’ve designed a range of trade credit offers for different types of business and transactions.  Every business can benefit from good credit management.  

Please get in touch with us to discuss what would be most suitable for you.

The premium is calculated for your business and the way you trade. This helps us make sure you receive the best match and service excellence for your business as well as an affordable premium.

If you haven’t used it before, here’s how to work out what it might cost for one of our more popular policy types.  The premium is based on a percentage of your sales, conservatively around 0.25% - often below, sometimes above.  Suppose your sales were $20 million last year and you want to cover that entire revenue.  Then the premium would usually be less than $50,000.  

Premiums can change depending on multiple variables.  Visit our Cost of Credit Insurance page to learn more.

Our insurance is designed for businesses with sales of at least $5million per year, but companies with sales of as little as $1million sometimes find our services to be a good fit, depending on the situation.  If your sales are lower than this, our insurance may not be the most suitable product for you.  We suggest you speak to your insurance broker or business bank manager who will be able to point to other ways you can protect your business. 

Many businesses trade with long standing customers that seem well funded. They believe payment can be relied on. However, even the strongest commercial concerns can be affected by the economic cycle and commercial trends. 

One Allianz Trade customer, EDPA, experienced this scenario when one of their oldest customers filed for bankruptcy and disputed EDPA's receivables. Read the EDPA case study for details.

"The Allianz Trade team made us feel so comfortable about the situation and confident that it would get resolved. When you are facing an enormous financial loss, having someone knowledgeable, supportive, and responsive in your corner can make all the difference. We are very, very happy with the service we received."
   – Alp Benadrete, Managing Partner in Charge of the Home Textile Division for EDPA

It takes considerable investment in data collection to keep track of customers’ financial health and to evaluate the risk of non-payment.   We make that investment so you don’t have to and we make the analysis available to you.  Insurance backed by insight allows you to trade with peace of mind through all phases of the cycle – today and tomorrow. 

Yes, we have experience in supporting longer term transactions (for example, multi-year contracts). Get in touch with us and let us know what you need. We’ll be pleased to make recommendations.
Yes.  Exporters concerned about political events can also benefit from coverage for non-payment as a direct result of events in the buyer’s country. Typical situations in which international credit insurance companies can help include war or cancellation of a contract by the local government. Another example is when a government imposes rules that stop goods from being exported or imported or when regulations prevent hard currency transfers.

There are many benefits to trade credit insurance.  If you have just started with trade credit insurance it can be useful to review your processes and procedures so that you gain the greatest value from your insurance policy.  We can advise you on best practices too.  Here are some examples of what you can do.

  • Train your employees on the use of our systems. Use our information on limits and grades to improve credit control and defend against catastrophic bad-debt losses.  
  • Demonstrate the enhanced quality of your accounts receivable when negotiating with lenders to access better terms.
  • Build our information into your sales planning to target the most financially sound new customers.  
  • When developing strategy and business plans, identify the risks in new markets and opportunity areas with our data.
  • Access our debt collection capabilities and network to accelerate the speed of payment.  Aligning your processes with our systems will improve efficiency. 
  • Strengthen your cash flow by insuring invoices so that you are indemnified for non-payment.  
  • Design your financial management and reporting to identify performance improvements.
  • Prevent disruption to cash flow from slow payment, nonpayment, and insolvencies
  • Reduce the risk of key account concentration levels

  • Borrow against insured receivables
  • More capital at reduced rates – take full advantage of A/R reduction in bad debt reserves

  • Expand sales into riskier or new markets with favorable terms
  • Grow with existing accounts and safely offer open terms to new accounts
  • Provide a structure and discipline for credit decision making
  • Fast data-driven credit decisions on customers, prospects, industries, and countries
Small Business Trade Risks
Learn how trade credit insurance data helps businesses with up to $25 million in annual revenue identify creditworthy customers, protect receivables, and safely grow sales.

Expand your business in domestic or international markets and protect your key financial accounts. Explore solutions for companies with revenue exceeding $25 million.
We build and manage robust, global insurance for credit risk and related services specifically for you, to give your multinational enterprise the confidence to trade in this complex environment.
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