Trade finance insurance is a powerful tool that offers businesses protection against potential non-payment or insolvency of their customers. In today’s unstable and uncertain business environment, a proper understanding of all aspects of trade finance insurance is of great importance for companies that want to protect their receivables and reduce credit risk. This text provides you with more information about trade finance insurance, including the benefits, key features and factors to consider when contracting the coverage.
What is trade credit insurance?
Trade credit insurance is a valuable risk management tool that protects businesses against the potential non-payment, insolvency or bankruptcy of their customers. This insurance allows businesses to trade with more confidence in volatile market conditions and protects them from certain political risks that could make debt collection difficult or impossible. In a world where economic and political conditions change swiftly, trade receivable insurance becomes an irreplaceable instrument for risk management, which provides companies with security and stability in their business operations.
Financial stability
Trade finance insurance provides companies with protection against unexpected losses due to non-payment of clients. This means that even if the client fails to pay their debt, the company can count on the insurer to reimburse a part or the entire amount, thus ensuring the stability of its finances.
Improved sales
When a company knows it is protected by accounts receivable insurance, it is more likely to extend credit terms to its customers, which can boost sales and business development.
Market insight
Accounts receivable insurance allows companies to better understand the risks associated with specific customers or markets. Many insurers provide information and credit risk analysis that can help companies make informed decisions when approving a credit or entering new markets.
Access to finance
Companies with accounts receivable insurance often have better access to bank loans and other sources of financing. Banks and financial institutions see insurance as reducing the default risk, thus providing companies with better and easier access to favourable financing terms.
Liquidity management
With a reduced risk of loss due to unpaid receivables, companies can manage their cash flow and liquidity more efficiently. This can help the company maintain a stable operating position and focus on growth and expansion rather than tracking and collecting unpaid receivables.
General coverages for trade finance insurance
Non-payment
This is basic coverage related to situations when the customer fails to pay a debt within a certain period.
Insolvency or bankruptcy of customers
If the customer becomes insolvent or declares bankruptcy, the policy covers the loss the insured suffered due to unpaid claims.
Political risk
In some cases, the insurance may cover losses arising from political events, such as war, revolution, confiscation of property or other similar events that may prevent the customer from fulfilling their obligations.
We are witnessing huge natural disasters that have hit almost all continents in recent years. Trade finance insurance allows you to enter into a policy that can also provide coverage for losses arising from major natural disasters, the consequences of which can make the process of debt collection more difficult. This type of coverage can make the difference between a sustainable business and critical problems, which can completely change the business or even make further business operations impossible.
Features of the trade credit insurance policy
Trade debtor insurance policies have several basic aspects that should be taken into account and adjusted to the specific needs and characteristics of the business. In this regard, EuroSolutions provides full support, based on in-depth knowledge and understanding of the best practices and standards for trade credit insurance, as well as on the analyses we carry out as the first step of our customized insurance service.
Consulting Services
As part of their trade credit insurance policies, some insurance companies provide additional services, such as credit risk assessments and/or claims management advice.
Accounts receivable insurance is considered to be a vital tool for companies that want to protect their receivables and improve credit risk management. By protecting against insolvency, bankruptcy and delay of a customer, as well as political risks, trade finance insurance enables improved management of cash flows and better access to finance, while at the same time freeing the company’s resources, which would otherwise be engaged in debt collection, and allows the company to focus on productive activities and projects. A proper understanding of the key features, benefits and scope of a contracted trade finance insurance policy is essential to mitigate the potential financial impact of customer defaults and ensure sustainable growth in an increasingly dynamic business environment.
To help you understand and proceed with the trade credit insurance procedure, contact us via the contact form and secure your claims in 5 steps.