Trade credit insurance: Are there contingency credit-risk plans?

While trade credit insurance is the most common method, other credit risk mitigation tools have worked way into the mainstream, trade credit insurance means insurance of suppliers against the risk of non-payment of goods or services by buyers against non-payment as a result of insolvency. So then, before the credit organization can take steps to mitigate credit risk, it is important to understand corporate strategy and corporate tolerance of credit risk.

Financial Trade

Especially in industries where non, late payment is common, or when extending large amounts of credit is required to attract bigger, better and more profitable organizations, other than trade-credit insurance and limited credit-enhancement policies, the risk of default of your organization is typically borne by the business owner. In like manner, the term financial risk is often used to refer to market risk, credit risk, and liquidity risk, because these have traditionally been the responsibility of the firms corporate financial officer or treasurer.

Knowing Insurance

Commercial credit risk coverage can be written to cover your organization entire customer base, there are a number of different types of structures that can accommodate credit insurance schemes, in most cases, the most efficient solution is to form a specialized credit insurance organization, also, credit insurance helps businesses trade with confidence, plan for strategic and sustained growth, and explore new markets or products, knowing that the business is protected against credit risk.

Good Risk

You take a very consultative approach to your business – you are your trusted advisors for credit insurance, and your mission is to make sure that your policy works well for you, when evaluating an opportunity to do business with a new customer or one in financial difficulty, suppliers weigh protecting the strength of their own balance sheet against the desire to remain competitive in the marketplace, also, good management of your trade credit risk is a key challenge and also an opportunity.

Usual Terms

Single debtor financing trade credit insurance can be used for a single debtor risk, it is usual in trade credit policies for there to be conditions which the policyholder needs to comply with to ensure that the sale or transaction comes within the terms of the policies, also, purchasing business credit insurance can substantially reduce the risk of exposure to customer non-payment, and an acorganizationing bad debt write off.

Appropriate Business

Extends from full credit approval to monitoring, reporting services and tailored outsourced credit management, properly tailored business credit insurance policy can help you grow your business with the security of knowing that should the worst happen, you have the right bad debt protection in place, also, organizations should consider if the use of credit insurance products and debt recovery services is appropriate to manage the risk and effects of bad debts.

One area, still far from resolved, is why trade credit is extended by nonfinancial organizations to customers, if your organization has a receivable insurance policy, and more than one of your organization defaults, the insurance cover can pay. As a result, where non-payment of a trade debt would materially impact organization financials, especially its working capital, trade credit insurance may be the solution.

In doing so it should recognize the goals of credit quality, earnings, growth, and the risk-reward tradeoff for its activities, obtaining fast relief under trade credit insurance policies is essential for businesses.

Want to check how your Trade credit insurance Processes are performing? You don’t know what you don’t know. Find out with our Trade credit insurance Self Assessment Toolkit: