TRADE CREDIT INSURANCE

A look at many businesses today would reveal that a significant portion of their current assets on their balance sheets are in the form of receivables. That is, money owed for goods supplied on credit terms. Though Accounts Receivables represent the single biggest asset of many companies, it’s mostly at risk since they are commonly uninsured.

 

Every creditor faces the risk of non-payment or delayed payment due to customer insolvency, protracted default and political risks that prevent the buyer from fulfilling its payment obligations. You therefore need Trade Credit Insurance

 

What is Trade Credit Insurance?

 

In simplest terms, Trade Credit insurance is bad debt insurance. It protects businesses from non-payment of commercial debt. It helps ensure that invoices will be paid and allows companies to reliably manage the commercial and political risks of trade that are beyond their control. It ensures that:

 

  • Capital is protected
  • Cash flows are maintained
  • Loan servicing and repayments are enhanced
  • Earnings are secure

 

Benefits of Trade Credit Insurance

 

Companies invest in trade credit insurance for a variety of reasons, including:

 

  • Sales expansion – A company can safely sell more to existing customers, or go after new customers that may have been perceived as too risky.
  • Expansion into new international markets – Protection against unique export risks and market knowledge to make accurate growth decisions.
  • Better financing terms – Banks will typically lend more capital against insured receivables and may also reduce the cost of funds.
  • Reduction in bad-debt reserves – Insuring receivables frees up capital for the company.

 

How Does Trade Credit Insurance Work?

 

The insurer monitors the financial performance and well-being of your customers. Each of these customers will be allocated a grade that reflects the health of their activity and the way they conduct business.

 

Based on this risk assessment, each of your buyers is then granted a specific credit limit up to which you, the insured, can trade and be able to claim should something go wrong. This limit can be revised upward or downward as new information becomes available.

 

Throughout the lifetime of the policy, the insurer will inform you of any changes that might impact the financial health of your buyers and their ability to pay you for goods or services you have delivered.

 

When one of the buyers shows signs of experiencing financial difficulty, the insurer notifies all policy holders that sell to that buyer, of the increased risk and establishes a plan of action to mitigate and avoid loss.

 

In the event of an unforeseeable loss, the insured policy holder will file a claim with supporting documentation and insurer will be indemnified subject to the policy limit

 

Who Buys Trade Credit Insurance?

 

Any company that sells goods and services on credit terms (i.e. extends credit to customers rather than requiring payment up front) and is exposed to the risk of non-payment.
Trade credit insurance only covers business-to-business accounts receivable. It does not cover governments or retailers.

 

What determines the premium payable?

 

Some of the factors considered in determining premium payable include insurable turnover, quality of the risk, credit terms offered by the proposer, quality of the credit management, sector of the buyers, countries covered, spread of the risk and level of self-retention.

 

How do I start?

 

Walton Insurance will assess your needs and give you options. Give us a call or email us and one of our friendly staff will help you get the best cover at the right price.

0202400035 | info@waltoninsurance.co.ke

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