Trade Credit Insurance
Business instability and the possibility of unpaid debts is a persistent challenge that undermines growth prospects, investment plans, and the ease of transactions essential for success. Credit insurance provides a valuable solution to this issue, providing certainty in an uncertain environment.
What is Trade Credit Insurance?
Trade credit insurance, also known as credit insurance or accounts receivable insurance protects businesses from the risk of non-payment by their customers therefore providing stability.
When a business sells goods or services on credit terms, there is a potential risk that the customer might not fulfil their payment obligations due to insolvency, default, or other financial issues. Trade credit insurance helps mitigate this risk by providing compensation to the insured business if their customer fails to pay.
Cover is particularly valuable in uncertain economic times
Credit Insurance is particularly important during periods of economic instability, such as the current environment with high rates of inflation, low growth and escalated insolvency rates. Equally, it proves indispensable for companies venturing into new markets and territories, which inherently carry heightened uncertainty and risk.
Purchasing credit insurance cover provides certainty, allowing businesses to focus on their core activities and business opportunities.
Confidence to develop new markets
Credit Insurers provide clients with insight into the performance and stability of businesses within their target customer sectors - which allows expansion plans and sales activity to be pursued with confidence that potential buyers can pay their bills.
Credit insurance policies can be tailored to the specific needs of a business, covering specific customers, markets, or regions.
Summary of Benefits:
- Risk Mitigation against customer non-payment: The primary benefit of credit insurance is that it helps businesses mitigate the risk of non-payment due to customer insolvency or default. This is particularly important when dealing with large or international customers where the credit risk might be higher.
- Cash Flow Protection: Credit insurance ensures that a business can still receive payment for goods and services even if their customer defaults. This helps maintain a steady cash flow and prevents financial disruptions that could arise from unpaid invoices.
- Expansion Opportunities: Credit insurance can provide businesses with the confidence to explore new markets and customers that they might have otherwise considered too risky. This can open up opportunities for growth and expansion.
- Better Credit Management: Credit insurers often provide valuable insights and credit information about potential customers. This helps businesses make more informed credit decisions and set appropriate credit limits for their customers.
- Financing Benefits: Having credit insurance can make it easier for businesses to secure financing or loans from banks and other financial institutions, as it demonstrates a proactive approach to risk management.
- Risk Distribution: By transferring some of the credit risk to an insurer, businesses can better manage their overall risk exposure and protect themselves from major financial losses.
- Bankruptcy and Political Risk Coverage: Some credit insurance policies include coverage for political risks, such as currency exchange issues, government actions, and even war. This can be especially valuable when dealing with international customers.
- Solvency Protection: Credit insurance can help safeguard a business's financial stability and solvency, preventing potential bankruptcies caused by significant bad debt.
Knowing that the business is protected against customer default can provide business owners and management with peace of mind, allowing them to focus on other aspects of their operations.
As a part of Brown & Brown we have access to a market leading trade credit insurance broker. Xenia Broking, who are also a part of Brown & Brown are a specialist Credit Insurance brokers and well placed to advice our clients in all credit insurance related enquiries.
Please get in touch with your local Brown & Brown broker if you would like to find out more