When considering the risks that your business may face, trade receivables or trade debtors are often overlooked. If your company supplies goods or services on credit terms, your trade debtors will represent a high proportion of your company’s assets, often as much as 40%.
Insuring financial loss due to non payment by a customer, due to their insolvency, receivership or appointment of an administrator is known as Trade Credit Insurance or TCI.
How does Trade Credit Insurance Benefit my business?
*Protection of all unpaid credit sales at the time your customer has a Receiver or Administrator appointed.
*Payment of up to 90% of the outstanding debt at the time of receivership or administration
*Restoration of cash and liquidity
When a customer becomes insolvent and fails to pay outstanding debts there is an immediate impact on your cash flow. A claim payment under a TCI policy will help restore that cash flow and liquidity.
*Assistance with credit management procedures
TCI cover will assist your company’s credit management procedures by offering timely feedback on your customers following an individual credit assessment by the insurer. This assessment will determine their ability to pay their debts as and when they are due.
*Confidence to grow your business
The credit assessment by the insurer will give you the confidence to grow your business by allowing extension of competitive credit terms to both new and existing customers.
*Assistance with debt collection
The time and effort involved in pursuing bad and doubtful debts will be reduced as the insurer will work with your staff to assist with the debt collection process – even before a claim has been lodged. After a Receiver or Administrator has been appointed to one of your customers, the insurer will provide free advice on the process to assist with debt recovery. If required, the insurer can even attend creditor meetings on your behalf.
*Improved funding opportunities
By protecting a major asset on your balance sheet and your cash flow, your bank or financier may also be in a position to offer higher levels of funding or impose less onerous security requirements.
How does Trade Credit Insurance Work?
An insurer conducts a credit assessment for each of your customers individually and sets a credit limit for each customer.
The credit limit varies per customer and may be increased or decreased depending on the information gathered by the insurer through their extensive network of credit information suppliers.
Once the insurer finalizes the assessment, you can trade against your customer’s approved credit limit. New credit limits can be applied for at any time during the period of the policy and existing credit limits can be increased.
Is there only one type of Trade Credit Insurance for all companies?
As a business solution provider, there are varied options available for you to choose from. You can can customize a trade credit insurance policy that suits your company under the following categories:
- Whole turnover cover
- Top or selected buyers cover
- Selected market cover
What are the terms of the Trade Credit Insurance policy?
- During the lifetime of the policy, the insurer keeps track of this and will inform you of any changes to the financial health of your customers that may impact their ability to pay your company for the goods or services delivered.
- Should your customer fail to pay you, you are insured up to 90% of the credit limit set and you may file a claim accordingly.
- If your customer is insolvent, you will receive payment from the insurer within 30 days upon their receipt of written evidence of the insolvency.
- Trade credit insurance is available to companies of any size.