Trade Credit Insurance is a must-have for companies

Many businesses that sell goods and services have inventory debt. These debts typically take the form of loans or lines of credit from their suppliers. Suppliers and lenders can be financially strained if customers don’t pay their bills on time. Trade credit insurance policies are a way for businesses to safeguard themselves against non-collectible debts. These are just a few reasons to think about credit insurance.

Manage Financial Risks

Unexpected events could still happen, no matter how diligent a lender is in credit checks and financial background analysis. You can better manage financial risk if your customer cannot pay their debts by having credit coverage.

Improved Cash flow

You must have enough money to cover your company’s daily expenses. Credit insurance can help you cover your bills even if your customers do not pay. If payments are delayed, you’ll still have enough money in your bank account to keep your company afloat.

Better Credit Monitoring

Credit insurance keeps an eye on customers during the entire term of your policy. You and your team have access to this data to help you assess the creditworthiness of potential customers as well as their financial status throughout their life.

Competitive Advantage

You can offer your customers higher credit limits if you have Credit Insurance. To attract more customers to your business, you might be able to offer better terms or conditions on payment.

Resolves Trade Issues

Payouts to your customers may be affected by global disruptions like currency problems, political unrest, and government interventions. Credit insurance gives you additional peace of mind, knowing that you are protected from any financial hardships.

Here are 4 reasons why companies use trade credit insurance

There are four main reasons that insurance can be purchased

Provide incremental sales,

If buyers don’t pay, default risk protection is provided

As a financing tool, increase the eligibility of receivables

Act as a cost-reduction tool to decrease bad debt reserves

Trade credit insurance is not always a straightforward purchase. The coverage is used by many companies for multiple reasons: receivables finance; risk mitigation; penetrating New Markets; expanding Sales; using longer credit terms to convince distributors to stock greater quantities in-country. This transfers inventory carrying costs from the exporter back to the buyer. According to conversations I’ve had with companies, cost reduction (through the lowering of bad debt reserve) tends to be the main reason.

As a way of decreasing bad debt reserves, insurance is a good investment. Benefits accrue both on your income statement and the balance sheet, as the insurance premium is an expense. According to companies, they were able to lower bad debt reserves.

It seems that insurance coverage can be used to facilitate lending on foreign receivables. We have seen a significant rise in the eligible assets of companies that have taken this route. A bank client borrowing at 6% is better than Libor. If they have 70% of their receivables insured, they can borrow at 85% or more of the pool.

These are some things you should consider when assessing your buyer portfolio’s “risk”.

Use insurance to help overseas receivables. There is a great opportunity in this area, particularly for the mid-market. Insurance coverage can be used to facilitate lending and financing on foreign receivables.

Determine the concentration of your sales accounts and country exposure risk and determine how this affects your financials.

Partners that can help you bring together the right tools to risk participation and technology. This includes asset-based lenders, insurers, and software companies. Technology allows tracking compliance to policy conditions. This enhances the financing options available to companies for trade receivables financing.

Assess the tradeoffs when moving further trade-off Letter credit. Understanding the risks of opening an account can help you to reduce them. You can use Standbys to ensure your dealers have OA payment terms, private insurance, or even use the letter of credit confirmations.

Trade Credit Insurance is a must-have for companies
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