A business wanted to expand sales with its current customers but was not completely comfortable offering them higher credit limits. They contacted Coface credit insurance to cover the higher credit limits so they could increase the amount of credit offered to customers without risk.
Trade credit insurance (TCI) is a method for protecting a business against its commercial customers' inability to pay for products or services, whether because of bankruptcy, insolvency, or political upheaval in countries where the trade partner operates.
What are the different types of trade credit insurance?
The most common types of trade credit insurance are single-buyer policies, portfolio policies, and country risk policies. Single-buyer policies provide protection for businesses that extend credit to a single customer.
Trade credit insurance provides cover for businesses if customers who owe money for products or services do not pay their debts, or pay them later than the payment terms dictate. It gives businesses the confidence to extend credit to new customers and improves access to funding, often at more competitive rates.
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.
It'll insure your company and staff for use of vehicles in the day-to-day running of the business. It's motor-specific business insurance that you'll need if your company has customers' vehicles in its care, custody or control. You'll also need motor trade insurance if your business involves selling vehicles.
What is the largest trade credit insurance company?
Regulatory oversight of the three largest global trade credit insurers (Euler-Hermes, Atradius, Coface – all EU based), is very developed and transparent with effective enforcement. Other TCIs are subject to regulation from the various countries in which they operate.
For example, you may be offered insurance that will pay or reduce your monthly loan payment if you become disabled, or that will pay off or reduce your loan if you die. If it is credit property insurance, it usually pays the lesser amount between the value of the item or the balance of the loan.
Trade credit insurance helps businesses to safely sell more to existing customers or expand to new customers, that may otherwise have been deemed too risky, knowing they are insured should the customer not pay their debts.
For example, if Company A orders 1 million chocolate bars from Company B, then the payment terms could be such that Company A has to pay within 30 days of receiving the order. This arrangement between the two companies is generally known as trade credit.
Every business can benefit from good credit management. Trade credit insurance is one of the most important tools for that purpose. If you're selling on open account terms to other businesses, then trade credit insurance could bring many benefits.
There is no legal requirement to have public liability insurance, but as it's impossible to predict when an accident may happen, we strongly recommend you get insurance.
Surprisingly, no. It's not illegal to not have public liability insurance. But, without this protection, you're risking everything you've worked so hard to build. And while you don't need cover by law, some contracts and clients may require you to have this in place.
A trade policy is a government policy that affects the number of goods and services a country exports and imports. Free trade is when there are no government restrictions on trade. Protectionism is when governments set trade restrictions to help domestic industries. In an economy, there is a spectrum of trade policies.
In short, Credit Insurance is designed to protect your business if a customer does not pay, or goes bust, or a supplier does not deliver, or goes bust. It can also keep an eye on your customers' credit to give advance warning and help reduce exposure to potential bad debt.
Credit insurance guarantees a lender will be repaid if a borrower is unable to pay his or her debt due to, for example, death or disability. Although credit insurance is solely for the benefit of the lender, it is purchased and paid for by the borrower.
Trade credit insurance insures your accounts receivable and protects your business from unpaid invoices caused by customer bankruptcy, default, political risks, or other reasons agreed with your insurer. Trade credit insurance is also known as debtor insurance, export credit insurance and accounts receivable insurance.
Trade credit insurance provides cover against the risk of businesses not being paid for goods or services that they sell, whilst also giving businesses access to detailed information and guidance on all aspects of trade from industry experts. Hence, trade credit insurance provides the key to successful trade.
How is your trade credit insurance premium calculated? Your credit insurance premium is based on a percentage of your sales, conservatively around 0.25 cents on the dollar. If your sales were $20 million last year and you want to cover that entire revenue, your premium would typically be less than $50,000.
Trade credit is costly for firms that compensate at the end of a discount period by forgoing discounts, the companies incur costs for financing. In case the company fails to pay within the stipulated time, they may end up paying additional charges for late payment.
The reason is that after obtaining trade credit, the retailer can use the freed-up liquidity to buy more goods not only from the trade creditor but also from other suppliers, leading to a free rider problem: each supplier bears the full cost of providing trade credit, whereas the benefit – larger spending by the ...
What is the biggest difference between trade credit and consumer credit?
Trade credit is similar to the kind of credit consumers use, except it's between a retailer and the supplier who sells them inventory. It allows the retailer to get the inventory items today and pay for them at a later date, hopefully after the purchased inventory items have been sold!
