Trade Credit Insurance Overview:
Your business is likely to be affected by risks which are beyond your control. These entail commercial and political risks. Trade credit insurance has been especially formulated to protect the policyholder’s business against risks which are beyond their control. A comprehensive trade credit insurance policy ensures improvement of bottom line quality, increase profits and reduce risks of unforeseen customer insolvency. You can also offer credit to new customers. This improves funding access at competitive rates. This is an insurance for short term account, due within 12 months.
Benefits of Trade Credit Insurance Policy:
Trade Credit Insurance has many benefits, they have been listed below –
- It protects your business against risks which are out of your control.
- It improves bottom line quality of the business.
- It increases profits and reduces risks of unforeseen customer insolvency.
- It lets you offer credit to new customers.
- It improves funding access at competitive rates.
- It protects from anticipated earnings restatement.
- It optimises bank financing. This is done by insuring trade receivables.
- It supplements credit risk management.
Trade Credit Insurance Covers:
Trade Credit Insurance provides coverage against commercial and political risks for your business. This insurance helps companies attain goals by turning over their sales into cash conversation.
- Covers the complete turnover with stipulated limits. This is done for top purchasers. For small purchases the limit is discretionary.
- This insurance provides coverage to large purchasers of clients.
- Open accounts sales-export and domestic are protected by trade insurance against non-payment from the purchaser. This can be caused due to buyer insolvency i.e. if the buyer declares bankruptcy of business, buyer doesn’t declare bankruptcy but is unable to pay (protracted default), political risk like inconvertibility of currency.
Who is Trade Insurance ideal for?
As mentioned, Trade Credit insurance assists companies who sell their goods on open account basis. They seek protection by manufacturers and wholesalers, who dispatch goods on credit. This targets both domestic and off-shore customers.
Example of credit insurance
Say your company has profit margin of 5%. But one of your buyers piles up a debt of Rs. 100,000 on you. In this scenario, you need to create enhanced sales worth Rs. 2,000,000. This is required to compensate for lost profits. If your company faces non-payment, it makes your company weaker by reducing your company’s investment power. If you have a comprehensive credit insurance policy, you can handle the account receivables and lessen the losses of the company in case there is a non-payment. This type of insurance is tailor-made according to the size of your company, the type of business, business needs and the sector your business belongs to. This insurance is extended from small-medium entreprises (SMEs) to large multinationals.
Companies offering Trade Credit Insurance are:
Tata AIG General Insurance is a leading organisation in India which offers trade insurance to customers.
Trade Credit Insurance Claims settlement process:
It is a quick and hassle free process to settle your trade insurance claim. Just ensure that you furnish all the essential documents (valid and duly filled/stamped) with your claims from. For further details on this, seek assistance from your insurance provider.
The aforementioned reasons clearly show how buying trade credit insurance is a smart and wise choice. But before you settle down with buying a certain policy, make sure that you do a thorough groundwork and identify your requirements, i.e. exactly what do you need the trade credit insurance cover for.