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Is Trade Credit Insurance Suitable For Your Business?

by

Christina Ricci

Part of facilitating international trade is using a trade tools such as insurance policy and risk management product. These tools are collectively called credit insurance. Business entities who wish to protect their export accounts receivable are offered credit insurances by insurance companies and other governmental export credit agencies.

Credit insurances have been covering thousands of international businesses trading within various countries such as United States and UK. These insurance can an important tool in credit management and also provide capital replacement at times when bad debts and late payments affect the cash flow. Providers of credit insurance, or most commonly referred to as credit insurers, help businesses manage their credit risk and at the same time, provide protection of insurance cover within the terms of the policy.

Benefits of credit insurances are aplenty, even for small and medium sized companies. However, credit insurances are not for all types of businesses. It would still depend on the type and needs of business seeking cover. Considerations have to be made first by the business and insurer such as credit control. Insurers would want an efficient credit control of businesses with evidences stating that credit terms are defined and the application forms are always accomplished by customers.

Trade credit insurance

should also be considered based on credit limit. This is the key element and credit insurance policies. It is also the maximum amount in insuring a business in respect of a buyer at any one time. Credit limits are generally set by the insurer.

Another consideration for

trade credit insurance

is the premium rating and cost. Determining the cost of credit insurance is relevant to the insurance policies set by the insurer. However, most policies are commonly tailor-made , meaning the policies vary greatly from one insurer to another.

Businesses seeking for cover through

trade credit insurance

have relative financial needs. Thus, a number of insurance companies guarantee credit insurance but tend to specialize in certain areas. Some companies may concentrate, say, on bankruptcy and default, usually on a ‘whole-turnover’ case. Other companies may also concentrate on ‘specific accounts’ cover. Whole-Turnover Policy cover the entire policyholder’s business and lets the policyholder grant credit to a stated limit while specific account policy can be on a flat or amendable basis and will cover several identified buyers.

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