Trade credit insurance is a type of insurance policy that helps protect businesses against financial losses resulting from the non-payment of commercial debt.
This could be due to various reasons, such as a customer going bankrupt, prolonged delays in payment, or broader economic and political disruptions impacting a customer’s ability to pay.
Trade credit insurance can provide coverage for both domestic and international trade transactions.
It helps ensure the policyholder can recover a portion of the invoiced amount if a customer fails to pay for the goods or services provided. By helping to protect against non-payment, trade credit insurance helps businesses manage their credit risk effectively.
This is particularly critical for companies with high receivables, where a single large non-payment could significantly impact cash flow.
With trade credit insurance, businesses can feel more confident extending credit to customers, knowing they have the right coverage to help protect against potential losses. This can help in expanding sales and entering new markets without the fear of significant financial setback.
Trade credit insurance is obtained for protection, it also complements credit management practices for informed, disciplined, and faster credit decisions.
Having trade credit insurance can also improve a company’s borrowing capacity. Secured receivables can be used as collateral for loans, often resulting in more favorable borrowing terms from financial institutions.