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What is Trade Credit Insurance?

  • Adroit Insurance and Risk
  • September 18, 2023

Most businesses allow customers to purchase goods or services without being paid upfront.

This can be risky, with the possibility that your customers may not pay on time, or worse, not pay at all. Trade Credit insurance can offer a solution.

What is Trade Credit Insurance?

Trade credit insurance protects your business from the financial impact of bad debts.

This is a specialist insurance covering the financial risks related to your customers, it’s offered by a handful of insurers only.

Cover is for customers who don’t pay their debts due to their insolvency, default, bankruptcy, or other reasons agreed with the insurer. Insurance can be purchased either on groups of customers or all debtors.

Trade credit insurance has limits. It doesn’t assist with managing debtors and only pays an agreed percentage (usually 80% – 90%) of the outstanding debt only once the debtor has been declared insolvent or bankrupt.

Benefits of Trade Credit Insurance

In addition to protecting your working capital, Trade Credit insurers can provide credit reports on individual customers or specific industries’ current or developing risks to help you better manage your customer base and the financial risks of the business.

How are Trade Credit insurance premiums calculated

The cost of trade credit insurance is calculated as a percentage of the turnover or group of customers to be covered, as well as the level of risk for the industry or sector.

Premiums will be assessed based on your trading history, specific larger customer financial credit ratings, credit terms, loss history, business sector, customer location and factors such as the need for non-cancellable credit limits or whole turnover cover.

Insuring your accounts receivable is a little different from any other insurance policy regarding questions about cost. As with most insurance policies, price is calculated against risk and specific requirements, which means that every policy is costed individually. You can also look to reduce the premium cost by taking higher excesses/ retention amounts.

Trade credit insurance can provide valuable protection for businesses that offer credit to their customers. Your professional adviser can work with you to understand what trade credit insurance is, what it covers, and what it does not cover so you can make an informed decision about whether or not it is right for your business.

When considering trade credit insurance, we can help evaluate your overall business risks and work with you to put into place the right level of coverage for your business and needs.

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