Understanding Trade Credit Insurance

Business is all about taking risks and making the best profits out of it. But what happens when you spot a golden opportunity in an area that you deem too risky to venture into? Do you let the opportunity go or embrace it blindly without loss protection? This is where trade credit insurance applies.

trade credit insurance

Credit insurance is designed to protect your business against political and commercial risks that cannot be prevented or are beyond human control. As such, it boosts your bottom line quality and ensures that your business grows profitably while minimizing risks like customer insolvency. It allows you to extend credit to a wider range of customers and increases your access to growth funding from financial institutions.

How Trade Credit Insurance Works

Trade credit insurance works by protecting your business against customers’ failure to clear debts owed to you. Bad debts arise when your customers fail to pay within the stipulated time frame or become insolvent. Before taking out credit insurance, your insurer evaluates your customers the well-being and financial capability. They allocate each customer a grade based on the stability of their activities and how they conduct business. Based on the information gathered, the insurer will grant each of your customers a credit limit that you – the insured party – can trade and claim compensation should they fail to pay. A customers’ credit limit is revised upwards or downwards as your insurer gathers new information.

However, you are informed of any changes that arise throughout the policy term if they affect your clients’ financial capability and subsequently, their ability to pay for the goods and services you provide. If your client fails to pay as agreed, you are indemnified as per your policy’s limit. In some cases, the insurer can handle debt collection on your behalf if necessary.

Why You Need Trade Credit Insurance

Ensures safe business growth

With credit insurance, you can expand your business confidently. It eliminates the risk involved when you are expanding credit lines to new customers you do not know about and existing customers as well. As such, you can spread competitive open credit terms without worry to new clients or use the competitive terms to lure new customers. Either way, your business will grow in capacity and financial standing.

Customer insights

As noted above, your credit insurer will conduct research about your customers’ financial capability and business well-being. As a result, you benefit from knowing all the crucial business information regarding your potential and existing customers before extending credit to them. This means that you can make informed decisions for your business by picking the right clients.

Increased borrowing options

With the security offered by trade credit insurance, you can borrow more working capital and at better terms to help your business grow and avoid cash flow problems. You maximize the availability of working capital through the receivables you pledge to lenders. Some financial institutions may ask for credit insurance as a prerequisite before offering your business a loan.

Conclusion

Trade credit insurance offers you the confidence to expand your business to great heights with minimal risks. Hence the need to seek advice from a trusted credit insurer like Niche Trade Credit if you are not insured.