How Much Does Trade Credit Insurance Cost?

To take control of your cash flow, consider the benefits of trade credit insurance. It’s an important business tool that helps you lower the risk for bad debts or unpaid accounts receivables. If you are curious about how much trade credit insurance costs, remember this: there are ways you can help control those costs and make a good trace credit insurance investment that helps you grow your business. This additional growth often helps offset the cost of trade credit insurance. 

The cost of your trade credit insurance policy will vary depending on 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.

If you sell to clients in a mix of industries and countries, your trade credit insurance rates will reflect the risk determined to be associated with all of them.

How is your trade credit insurance premium calculated?

Your credit insurance premium is based on a percentage of your sales, conservatively around 0.25 cents on the dollar. If your sales were $20 million last year and you want to cover that entire revenue, your premium would typically be less than $50,000.

A trade credit insurance policy can typically offset its own cost many times over, even if you never make a claim, by increasing your sales and profits without taking on additional risk.

Getting a trade credit insurance quote is the most accurate way to determine cost. There are many different policies designed to cover specific business needs.

Trade credit insurance protects businesses from non-payment of commercial debt. It covers your business-to-business accounts receivable. If you do not receive what you are owed due to a buyer’s bankruptcy, insolvency or other issue, or if payment is very late, a trade credit insurance policy will reimburse you for a majority of the outstanding debt. This helps you protect your capital, maintain your cash flow and secure your earnings while extending your competitive credit terms and helping you access more attractive financing.

With trade credit insurance, you can reliably manage the commercial and political risks of trade that are beyond your control. Trade credit insurance can help you feel secure in extending more credit to current customers or pursuing new, larger customers that would have otherwise seemed too risky. 

You may decide to invest in trade credit insurance if you are looking to:

  • Expand sales with confidence, whether selling more to existing customers or pursuing new customers.
  • Access better financing terms, as banks will typically lend more capital against insured receivables.
  • Make your best possible business decisions by accessing your trade credit insurer’s information risk data quickly.
  • Protect against non-payment and catastrophic loss.
  • Expand into new international markets, backed by protection from unique export risks and the market knowledge to make accurate growth decisions.
  • Reduce bad-debt reserves, freeing up capital.

Remember, your trade insurance premium can change depending on multiple variables, including:

  • The type of policy you choose and the percentage of risk being covered for each transaction.
  • Losses your business has experienced in the past.
  • Your business’ full financial history.
  • Your industry.
  • Your customers’ financial standing.
  • The country in which you are doing business.
  • Political risk.

When your trade credit insurance policy premium is calculated, one of the first factors considered is the industry you are in and your business’s financial and trading history. Your turnover and loss history, credit terms and receivables history will be reviewed. If your history shows a high number of defaults by clients, it doesn’t necessarily mean you will have a higher trade credit insurance premium. Many factors are considered and some that can outweigh a poor receivables history include market outlook for your industry and future demand for your products.

Next, important information about your trading partners is factored in. It’s important for your insurer to know about the creditworthiness of your trading partners and the history they have with you.

In addition, it is important for your insurer to understand where in the world your customers are located. They want to understand the risks associated with a country’s infrastructure, political climate and economic outlook. If you sell to a mix of clients in different countries, your rates will reflect the risk across all of them. Conversely, if you sell only to a particular high-risk industry in only a few countries, your rate may be higher due to the increased risk.

Finally, the annual revenue you want insured and the type of trade credit insurance policy you choose will be factored in. The four types of trade credit insurance policies include whole turnover, key accounts, single buyer and transactional coverage.