Trade Credit Insurance : Protect your domestic & international sales

What is trade credit insurance?

Trade credit insurance protects your business from your customers’ non-payments.
It insures your accounts receivable; protects your business from unpaid invoices. Your customer could file for bankruptcy or default on payment; there could be political risks in the countries where you sell. Such insurance is also known as “debtor insurance”, “export credit insurance” and “accounts receivable insurance”. 

How does trade credit insurance work?

No matter how careful you are, your customers can sometimes fail to pay for unforeseen reasons. Unless you demand payment upfront, or are covered by credit insurance, you are vulnerable to bad debt. Can your business afford a bad debt of $50,000 or $1,000,000? How bad will it affect your cash flow? Would you have to file for bankruptcy or still be able to buy milk for your kids? How well are you sleeping? 

Credit insurance protects your cash flow. It covers your trade with your customers, so that you still get paid even if they go under or fail to pay you. Let say you agree to sell $100,000 of products to your customer with a 30-day payment term; he does not pay, then files for bankruptcy.  The insurer pays you $90,000, which represents a 90% insurance coverage – A nice safety net for your cash flow and your expansion.

Trade credit insurance works by insuring you against your buyer’s failure to pay. It is used by businesses of all sizes to protect both international and domestic sales. Businesses also use credit insurance to help them secure finance and working capital with banks (improve banking margination), explore new markets with confidence and attract new customers with the ability to give a credit limit.

Most trade credit insurance solutions will be tailored to your requirements. The level and cost of your credit insurance will be determined by your needs: the size of your credit exposure, the level of risk associated with your customers, your business line and the location of your market. 

Advantages of trade credit insurance:

• Grow your customer base (immediate customer credit qualification) by offering competitive credit terms to your customers
• Enlarge your business with the confidence to develop your market by attracting new paying customers
• Become proactive by transforming potential bad debt into insurance premium to minimize lost through credit insurance 
• Build good customer relationship by knowing their credit capacity and improve your power of negotiation with them
• Improve your access to financing with your banker
• Sleep better at night knowing that your risk is minimized

How often do you check your customer's credit rating?            

Most businesses feel that, when a product or a service is invoiced, the job is done. Or, is it really? Yes, the hard work is done for your business. It is now your customer's responsibility to pay. When was the last time you checked your customer's credit rating? 

Keep in mind that your sales cycle is only complete once the money is in your bank account. We often forget about it. The blame is then put on the credit department for not being able to collect the account whereas, maybe, this customer account did not qualify from the start. Credit trade will qualify your buyers and let you know who is more inclined to pay their bills. It also monitors your customer credit rating all year long; a nice feature for a growing business.

With or without a broker?

Broker services will provide a lot of support, besides selecting the best insurance policy adapted to your business. They will help you manage your policy and negotiate insurance coverage for you on your customers. Credit insurance is suitable for most businesses, from small to large ones. It is not important if you sell a service or a product; as long you sell it to another business on a credit line. The premium is often much less than 1% of your yearly sales volume. However, it is important to compare different insurers to know what works best for you. 

What insurer should I chose?

The most known insurers in Canada are AIG, Atradius, Coface, EDC, Euler and La Garantie. Each has its own strengths in different markets and offers options that can suit your business. Contracting the insurer directly is possible. But will you save? Most customers that tried with or without a broker felt they benefited from a lower premium when dealing with a broker. An insurance agent will sell a policy and work for his employer. A broker will work for you using a yearly volume to negotiate with the insurer. 

How much bad debt can your business afford to lose this year?

Are you ready to protect your accounts receivables?