Trade Credit Insurance & Claims

Trade credit insurance is a crucial tool for businesses that extend credit to their customers. It provides protection against the risk of non-payment for goods or services delivered on credit. This type of insurance is particularly valuable in today's volatile economic environment, where the risk of customer insolvency or delay in payment or default can significantly impact a company's cash flow and profitability. 

What is trade credit insurance? 

Trade credit insurance, also known as accounts receivable insurance, is a policy that protects businesses against the risk of non-payment by their customers. This insurance covers the accounts receivable, ensuring that a business can maintain its cash flow and continue operations even if a customer fails to pay their invoice. 

The primary benefits of trade credit insurance include: 

1. Risk mitigation: It protects businesses from the financial impact of customer insolvency or protracted default. 
2. Enhanced credit management: Insurers often provide valuable insights and credit information about potential and existing customers, helping businesses make informed credit decisions. 
3. Increased sales: With the assurance that receivables are protected, businesses can confidently extend more credit to customers, potentially increasing sales. 
4. Improved financing terms: Banks and financial institutions may offer better financing terms to businesses with trade credit insurance, as it reduces the risk associated with lending. 

How does trade credit insurance work? 

When a business purchases trade credit insurance, the insurer assesses the creditworthiness of the business's customers and sets credit limits for each one. If a customer fails to pay an invoice within the agreed terms, the business can file a claim with the insurer. The insurer will then compensate the business for the insured amount, typically covering a significant percentage of the outstanding invoice, minus any deductible. 

The process generally involves the following steps: 

1. Policy issuance: The insurer issues a policy outlining the terms, conditions, and coverage limits. 
2. Credit assessment: The insurer evaluates the creditworthiness of the business's customers and sets credit limits. 
3. Monitoring: The insurer continuously monitors the credit risk of the insured's customers and may adjust credit limits as necessary. 
4. Claims process: If a customer defaults, the business files a claim with the insurer, providing necessary documentation and evidence of the debt. 
5. Compensation: The insurer compensates the business for the insured portion of the unpaid invoice, helping to mitigate the financial impact. 

Types of trade credit insurance 

There are several types of trade credit insurance policies available, each tailored to different business needs: 

1. Whole turnover policy: Covers all of a business's credit sales, providing comprehensive protection. 
2. Key accounts policy: Focuses on insuring the receivables from a business's most significant customers. 
3. Single buyer policy: Insures the receivables from a single customer, often used when dealing with a high-value or high-risk client. 
4. Catastrophic coverage: Provides protection against large-scale defaults, typically used by businesses with a high concentration of credit risk. 

Claims in trade credit insurance 

Filing a claim under a trade credit insurance policy involves several steps and requires thorough documentation. The claims process is designed to ensure that businesses receive timely compensation while minimizing the risk of fraudulent claims. 

Steps in the claims process: 

1. Notification: The business must notify the insurer as soon as it becomes aware of a potential default or insolvency. 
2. Documentation: The business must provide detailed documentation of the debt, including invoices, contracts, and communication with the customer. 
3. Assessment: The insurer assesses the claim, verifying the validity of the debt and the circumstances of the default. 
4. Settlement: Once the claim is approved, the insurer compensates the business for the insured amount, typically within a specified timeframe. 

Trade credit insurance is an invaluable tool for businesses that extend credit to their customers. It provides a safety net against the risk of non-payment, helping to maintain cash flow and protect profitability. By understanding the workings of trade credit insurance and the claims process, businesses can make informed decisions and effectively manage their credit risk. 

Contact us today to learn more about how we can help with your trade credit claims.