Trade credit Insurance
Comprehensive Trade Credit Insurance for Businesses
Trade credit insurance is a unique form of business insurance that protects businesses from the risks associated with selling goods and services on credit terms, protecting companies from severe financial losses that may arise.
Forum Insurance has three decades worth of experience working with multinational corporations located in Europe, Africa, the Middle East, Asia and North America to provide trade credit insurance. We can work with you to protect your business no matter your size.
What is Trade Credit Insurance?
Trade credit insurance offers protection to businesses in the event their customers fail to pay their debts or delay payments beyond the agreed-upon terms. This insurance instils confidence in businesses to offer credit to new customers and enhances their ability to secure funding, often at better interest rates. It specifically applies to products and services with payment periods of up to 12 months.
It’s highly recommended to consider trade credit insurance when conducting transactions with businesses on credit terms, especially when considering the potential failure of a business due to bad debt. For example, if your profit margin is 5% and you experience a £25,000 bad debt, you would need to generate £500,000 in additional sales just to recover the lost profit from that particular debt.
How Does Trade Credit Insurance Work?
Whilst hopefully you’ll rarely have to deal with claims on your trade credit insurance policy, however if you do, these are the steps taken during a purchase on credit, where the customer isn’t able to pay the manufacturer or retailer back.
Credit Sales Agreement - The manufacturer/retailer (the policyholder), agrees to supply goods to the customer on credit with 30-day payment terms.
Financial Difficulty - The customer experiences financial difficulty with increasing bad debts and cash flow problems.
Insolvency - As a result of their financial difficulties, the customer becomes insolvent and is unable to pay their debts to the manufacturer/retailer.
Trade Credit Insurance Monitoring - The credit insurer monitors creditworthiness of the customer and alerts manufacturer/retailer that cover will be withdrawn as a last resort.
Claim on Trade Credit Insurance Policy - The manufacturer/retailer can claim on their credit insurance policy for goods supplied prior to cover being withdrawn.
Preventing Bad Debts - By claiming on their credit insurance policy, the manufacturer is able to continue trading, avoiding bad debts that could have affected their ability to continue trading and pay their suppliers.
What Does Trade Credit Insurance Cover?
Trade credit insurance offers protection against various causes of loss, including:
Customer Insolvency - This encompasses situations such as administration, receivership, bankruptcy, and liquidation, which can lead to financial loss.
Protracted Default - This refers to instances when clients fail to pay your invoices within a specified period due to financial constraints, and there is no dispute regarding the debt.
Political Risk - This covers losses resulting from government intervention, such as currency inconvertibility, the cancellation of export or import licences, war, and natural disasters.
The Benefits of Trade Credit Insurance
By having a comprehensive trade credit insurance policy, you can protect your business from the financial risks that providing credit poses. With many businesses in different sectors providing credit, such as car leases and ecommerce sites offering ‘buy now, pay later’ options, many customers are choosing to pay through credit and in instalments.
You can work with a reputed trade credit insurance broker like Forum Insurance, who can work with you to create a policy best suited to your business requirements, taking into account how large your business is and what products or services you’ll be providing on credit. Contact us today for your insurance quote for trade credit.
Forum Insurance also provides a range of different insurance policies for businesses, including retail and shop insurance, public liability, professional indemnity and commercial combined.
RECENT POSTs
