Why you need Trade Credit Insurance in Challenging Times?

Trade Credit- Gargash Insurance- Business Insurance Broker 06 Sep, 2021

Do you know what is trade credit insurance? Learn everything about trade credit insurance and how businesses can benefit from it.

We live in times of uncertainty and unpredictability of what the future may bring. This uncertainty applies to both individuals and businesses in these challenging times. Where individuals are suffering the outcomes of unemployment, reduced or no pay, separation from family and many more, businesses are enduring problems of reduced operations, cash and liquidity problems, inability to pay and obtain amount due from buyers and customers etc.

One of the profound impacts of businesses affected by a global halt is issues concerning payment receivables, which cause cash flow and operational setbacks. Payment receivable problems or setbacks occur when buyers or customers have either failed to make prompt payments or pay at all.

This is where Trade credit insurance steps in to help businesses, of any size, (small, medium, or multinational companies) to protect against losses from these ‘bad debts’.


Purpose of Trade Credit Insurance 

In simple terms, trade credit insurance is the kind of protection that protects you from losses of protracted payments and bad debts. This can take place when customers have declared bankruptcy, insolvency or delay in payments due to other constraints.

Trade credit insurance works when your customers are unable to or have not paid within a specified period. Your trade credit insurance provider will compensate for full or part non-payment of the amount due, depending on the trade credit insurance policy, so your business can continue to function normally.


Benefits of trade credit insurance

1. Buyer’s insolvency

Trade credit insurance policy covers credit risk when your buyers prove bankrupt or insolvent and are unable to pay credits due. Trade credit insurance will prevent your business from suffering losses of a bad debt.

2. Credit management support

Trade credit insurance policy will also provide services to your business like buyer’s or customer’s insights, feedback and credit risk monitoring etc. Such services will entail close monitoring of potential risks through various analyses and software that could make predictions of delayed or protracted payments and bad debts.

3. Sales development

A Trade credit insurance policy will enable you to increase sales into other bigger territories so your business can reach its maximum potential in sales and revenue.

4. Political disruptions

Trade credit insurance policy will protect your business in non-payment of credit receivables because of disruptions in political states and situations of the area. This will allow for your business to not bear losses for factors beyond its control.


Why would your business need trade credit insurance?                                    

  • Facilitates cash flow

Businesses rely on their cash flow for day-to-day functions and operations. Not receiving payment on time can disrupt the process of the business, so trade credit insurance will compensate for the amount due to keep your business cash flow and operations afloat.

  • Assure the ability to manage financial risks

 Where customers are faced with unanticipated circumstances and unable to pay their due amounts, trade credit insurance allows you as a business to control the risks of non-payment efficiently.

  • Better relationships with customers

With trade credit insurance in force, you can create more customer-friendly payment agreements. This flexibility allows for existing customers and potential buyers to pay at a comfortable time, allowing better relationships with customers. Improved customer relationships enhance a business’s competitiveness in the market thus giving business the competitive edge to survive and thrive in a competitive market.

  •  Facilitates Increased Sales

A trade credit insurance policy enables you to sell more as it mitigates the risk of protracted default by customers. This may mean increasing sales to existing customers and acquiring of new customers as well. A larger customer base means higher revenues and a more profitable business.

  • Helps avoid unexpected impact on business

Apart from the protection of when a customer is unable to pay, trade credit insurance assists in identifying signs of potential bad debts very early on. This is because trade credit insurance also provides facilities such as tracking patterns by analysts and portfolio monitors who can spot early signs of inability to pay. This mitigates risk of non-payment and helps prepare for operations in the future.


What business industries may benefit from trade credit insurance?

Any business that deals with their buyers or customers on a credit basis is likely to benefit from trade credit insurance policies. These could be businesses in the following industries:

  • Oil and gas
  • Construction
  • Financial services
  • Petrochemical
  • Paper and printing
  • Pharmaceuticals
  • Agriculture
  • Recruitment
  • Food and drink
  • Logistics and distribution
  • Manufacturing
  • Wholesalers

Certain businesses are given more importance and access to trade credit insurance due to nature of these business’ industries and the consequent importance of safeguarding their interests.


Importance of trade credit insurance

With many economic and global factors raking its way through the world, businesses are under pressure now more than ever, to sustain business operations, maintain a healthy cash flow, retain employees and maintain growth, and efficient management of credit customers and risks of bad debts play an important role in enabling this.

Trade credit insurance exists as a ‘helping hand’ for businesses in times of need. Customers might fail to make payments promptly because of the lack of resources which can be attributed to multiple factors. The current, dynamic economic environment pose numerous challenges for businesses to sustain. One way your business can be financially protected from the repercussions of uncertainty of this ever-changing world is risk management through trade credit insurance policies.                                                                                 

For policies made to fit your business’s needs ensure protection with trade credit insurance policies, contact us today.


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