The Benefits of Trade Credit Insurance Protection
Trade credit can be a very important tool in set up new markets and customer loyalty. However, it also has a downside that can affect your cash flow as well as your working capital. Trade credit insurance can help manage your credit risk as part of your cash flow management strategy.
Trade credit insurance allows you to quickly get compensated if you have a bad default. This will result in a significant improvement in your working capital ratio and a decrease in uncertainty regarding cash flows. The risk of bad debts is of concern to many companies. Trade credit insurance products can help to protect your business.
Trade credit insurance is also available:
It allows you to improve your DSO, or Day Sales Outstanding. This is the average time taken to recover payment from a sale.
Your ability to manage and invest efficiently over the medium and short term. This will help to protect your growth.
Gives you peace of mind to your financier partners. Reassures your shareholders or bankers about the financial stability and gives them a greater incentive to lend you money.
Protects and accelerates your business development, while managing the risks that trade credits pose to your cash flow.
For many reasons, companies invest in trade credit insurance.
Sales expansion– A company that has receivables insurance can sell more products to its customers and pursue customers who might have been considered too risky.
Exploration into the new international market – This policy protects against certain export threats.
Better financing terms – Banks may lend more capital for insured receivables. They also have the potential to reduce costs and increase liquidity.
The company can reduce bad debt reserves. Insuring receivables allows them to free up capital. Credit insurance premiums, however, are tax-deductible. Bad Debt Reserve, however, is not.
Actionable economic information – The technology platform and information database of the trade credit insurer help to reduce operational and informational expenses.
Protection against Non-Payment and Catastrophic Loss -If an unforeseeable incident should occur to a company or its insurance carrier, the bill is paid through the claims process.
Increase sales and profits. Credit insurance policies often have significant cost-savings, even though the policyholder has never made a claim.
Improved relationship with a lender -Trade insurance can help improve a company’s relationships with its lender. For an asset-based loan to be approved, the bank will usually require trade credit coverage.
What does Trade Credit Insurance Cover
Trade credit insurance protects businesses and prevents them from defaulting on commercial debt. It covers all receivables owed to businesses. A trade credit policy will pay you a percentage of the debt if you do not receive your money due to a buyer going bankrupt, insolvency, bankruptcy, or another issue. This policy will protect your capital, keep your cash flow and help you earn more while also extending your credit terms.
Trade credit insurance helps you manage the trade and political risks that are out of your control. Trade credit insurance helps you feel more confident when you extend credit to existing customers or pursue new customers that are larger than usual.
Here are four types and descriptions of trade credit coverage. The cost of your policy will depend on what type you choose, which industry you are in, how much revenue you have each year, your creditworthiness, and your history with bad debts.
Full Turnover – This type of insurance covers trade credit against non-payment of commercial debts from all customers. You have the option to choose whether coverage applies to all domestic or international sales.
Key accounts – You can choose to insure your largest customers who would pose the greatest risk to your business if they don’t pay.
Single Customer, You can select a trade credit policy that protects against any default from only that customer if you have a lot of transactions with 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.