What is Trade Credit Insurance?

III. Operating Your Credit Insurance Policy

Step I: Agree credit terms with your customer and insurer

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.

Step II: Trade with confidence

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.

Step III: Deal with an unpaid invoice

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.

IV. Benefits of 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:

• Grow your customer base as potential buyers may be attracted to your credit terms
• Enhance trade providing you with the confidence to develop and expand your market
• Guarantee cashflow enabling you to build strong relationships with your suppliers and employees
• Safeguard customer relationships through improved communication and enhanced credit terms
• Improve your access to finance and your relationship with your bank
• Meet the risk management requirements of your stakeholders or board and provide peace of mind

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.

Disclaimer

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.