How does trade credit insurance cover your export risks?

1 What is trade credit insurance?

Trade credit insurance is a contract between an exporter (the insured) and an insurer (the underwriter) that covers a percentage of the exporter's accounts receivable from eligible buyers (the insured buyers) in case of non-payment. The exporter pays a premium to the insurer, based on the turnover, the credit terms, the buyer portfolio, and the risk profile of the export market. The insurer monitors the creditworthiness and payment behavior of the insured buyers, and provides credit limits for each buyer or group of buyers. The exporter can claim compensation from the insurer if an insured buyer fails to pay within a specified period after the due date, or becomes insolvent or bankrupt. The insurer will pay the exporter a percentage of the outstanding invoice, usually between 75% and 95%, depending on the policy.

2 What are the benefits of trade credit insurance?

Trade credit insurance can significantly help you grow your export business and reduce risks. It enhances your cash flow and working capital by securing accounts receivable and reducing bad debt provision. You can also offer more flexible and attractive payment terms to buyers, which can boost sales and competitiveness. Moreover, it supports access to trade finance and credit facilities from banks and lenders, who may accept insured receivables as collateral. Furthermore, trade credit insurance provides valuable market intelligence and credit information on buyers and export markets, helping you make better decisions and avoid risky transactions. Lastly, it safeguards you from unforeseen political and economic events that could affect buyers' ability or willingness to pay, such as war, civil unrest, currency fluctuations, or trade sanctions.

3 How to choose the right trade credit insurance policy?

Trade credit insurance policies can vary in terms of coverage, scope, cost, and conditions, depending on the insurer, the exporter, and the export market. It is important to compare different options and find the policy that best suits your needs and objectives. When selecting a policy, consider the level of coverage, such as the percentage of the invoice value that the insurer will pay in case of non-payment. Also look at the scope of coverage, including types of risks and events covered, as well as exclusions and limitations. The cost of the policy should be considered as well, including the premium rate and fees charged by the insurer. Lastly, review the conditions of the policy to ensure they are clear and reasonable. With an understanding of how trade credit insurance works and what benefits it offers, you can make an informed decision to grow your export business with confidence and peace of mind.

4 Here’s what else to consider

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