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I. What is Trade Credit Insurance?
II. How Does Trade Credit Insurance Work?
III. Operating Your Credit Insurance Policy
IV. Benefits of Trade Credit Insurance
Trade credit insurance is your financial safety net and is a risk management tool that protects your business from bad debts.
It insures your accounts receivable and protects your business from unpaid invoices whether due to bankruptcy, insolvency, or other agreed risks. By insuring your accounts receivable, you safeguard your cash flow and reduce exposure to bad debt. Credit insurance coverage is available for both your domestic and/or export customers and provides flexible coverage that can be tailored to meet your needs.
Trade Credit Insurance is also known as debtor insurance, export credit insurance and accounts receivable insurance. To learn more about Trade Credit Insurance terminology, download our Terminology Guide and learn more about the solution helps you trade with confidence.
Trade credit insurance works by insuring you against your buyer failing to pay, so every invoice with that customer is covered for the insurance year up to the terms of your policy.
The process is simple and effective. You sell goods or services on credit, and Atradius monitors your customers’ financial health using global data and analytics.It protects your cash flow and covers your trade with your customers, so that you still get paid even if they go under or fail to pay you. This means you can continue operating without disruption, even when payments fall through.
It’s used by businesses of all sizes to protect both international and domestic trade. Businesses also use credit insurance to help them secure finance and working capital with banks, explore new markets with confidence and attract new customers with favourable credit terms.
With this protection in place, you’re free to offer competitive credit terms, expand into new markets, and secure financing more easily, since insured receivables are viewed favorably by lenders.
Your trade credit insurer should monitor the financial health of your customers and potential customers and apply a risk rating, often called a buyer rating.
This is their assessment of how likely your customers are to pay your invoices on time. It will guide how much of your exposure they are prepared to insure.
The buyer rating is also a useful tool for you. You can use it as a guide to support your own due diligence and help you avoid potentially risky customers. A strong buyer rating can also help you secure potential buyers by offering them favourable credit terms.
Continue with business as usual. Some insurers will leave you alone. Some will provide ongoing support. At Atradius Trade Credit Insurance, we’ll share the market knowledge and expertise of our underwriters with you through regular trading reports and sector analysis.
Not paid? Let your insurer know. Most insurers will first try to recover the debt. Ideally their first approach will be amicable. Your customer may just need extra time to pay up, or they may want to renegotiate payment terms.
If your insurer offers a debt collection service as part of your insurance package they will start debt collection procedures. For example, if your customer has gone bankrupt they will deal with a receiver or liquidator on your behalf.
If the debt is impossible to recover, your insurer should pay up in line with your policy, often up to 90% of the debt. Whether through debt collection or insurance you should get all or most of the money owed to you.
Do You Have Questions About Trade Credit Insurance?
Protecting your accounts receivable from potential bankruptcy is only part of the benefit this type of debtor insurance can provide. In addition to protecting your business from the risk of insolvency, it can help:
You might be able to use credit insurance as a tax-deductible business service. It can be a requirement of your management board and you might find it a great asset when seeking finance from banks. Credit insurance is suitable for all businesses, from SMEs to large multinationals.
The statements made herein are provided solely for general informational purposes and should not be relied upon for any purpose. Please refer to the actual policy or the relevant product or services agreement for the governing terms. Nothing herein should be construed to create any right, obligation or responsibility on the part of Atradius, including any obligation to conduct due diligence of buyers or on your behalf. If Atradius does conduct due diligence on any buyer it is for its own underwriting purposes and not for the benefit of the insured or any other person.
Additionally, in no event shall Atradius and its related, affiliated and subsidiary companies be liable for any direct, indirect, special, incidental, or consequential damages arising out of the use of the statements made information herein.