How Trade Credit Insurance helps businesses to offer credit and secure new contracts
Trade Credit Insurance provides cover for businesses if customers who owe money for goods or services do not pay or fail to pay on-time often due to their own financial issues. It provides businesses with the confidence to continue to offer credit to new customers and gives them access to funding, often at competitive rates.
It is also useful to give confidence when a client makes a decision to double their order. In order for a business to fulfil that order they will need to buy more resources, pay more staff and work overtime, which all means an upfront investment. Although the client has always been a good payer there is still a risk of their order being cancelled part way through or their cash resources not being sufficient after all.
When taking on a new client, although it is a very exciting time, it can initially be a leap of faith in that once they receive the goods, they will pay the invoice.
Trade Credit Insurance reduces non-payment risk and enables businesses to feel confident in growing their business.
Benefits of trade credit
The Trade Credit Insurance gives the policyholder access to information that provides an early warning mechanism for their customers’ financial problems. The credit insurer will inform the business of any changes that might impact the financial health of their customers and their ability to pay for goods or services delivered. They will then come up with a plan to mitigate risk and impact for the policyholder.
Trade Credit Insurance reduces risk which are out of your control, lets you offer credit to new customers, ensures that you can continue to pay your own suppliers for goods and services and improves access to funds at competitive rates.
It is also a great way to boost sales by offering new customers favourable credit terms to entice them to buy from you over your competitors.
How Trade Credit Works
- The policyholder provides goods to customer on a 30 days payment terms.
- The customer gets into financial difficulty.
- The credit insurance company monitor their policyholder’s customers and alerts their policy holder of impending financial crisis.
- Customer becomes insolvent and therefore can’t pay the policyholder.
- The policyholder is able to claim on its insurance policy.
- The policyholder is able to continue trading and preventing the company to have. significant bad debts and will be able to continue to pay its own suppliers.
If you would like to discuss trade credit insurance, please get in touch with us 01905 21681