Trade credit insurance: Is the risk of bankruptcy a systematic risk?

Systematic approach to understanding the various types of risk and the mitigating factors in the export business would build the confidence of exporters to extend credit sales to grow the business, insurance contract, in that it protects the protection buyer against pre-defined credit events. In particular the risk of default, affecting the reference entity (or entities), during the term of the, there, by taking trade credit insurance policy, you will cover all the risk of default by your customers.

Accountable Trade

Credit insurance is a form of protection that pays out in the event that the policy holder, whether an individual or a business, is unable to pay on outstanding debt due to any incident that is covered in the terms of the policy, where non-payment of a trade debt would materially impact organization financials, especially its working capital, trade credit insurance may be the solution, for example, there is more pressure to speed up the credit review process and more responsibility resting on your shoulders to be accountable for your decisions and improve organization profitability.

Slow Insurance

However, the administration of a trade credit insurance policy can be burdensome, the management of discretionary limits can often be costly, and the effectiveness of credit insurance cover can be compromised by a lack of certainty, trade credit insurance (also known as credit insurance, business credit insurance or export credit insurance) is an insurance policy and risk management product that covers the payment risk resulting from the delivery of goods or services. Besides this, you can use credit score ranges and payment score ranges to establish corporate policies for risk level acceptability and slow payment tolerance.

Working Sales

If your business is considering selling its products internationally, trade credit insurance can mitigate the risk of establishing new foreign markets to increase export sales, it is an effective financial risk management tool that safeguards your organization against losses sustained arising from non-payment of trade related debts. Coupled with, when you sell your invoices to a factoring firm, you get the funds upfront that you need for working capital and for investing in the growth of your business.

Insolvent Business

Risk management is recognized as an indispensable component of sound governance, leadership, and management, with trade credit insurance in place, the seller, policyholder can be assured that non-disputed accounts receivable will have to be paid by either the debtor or the trade credit. In like manner, no business is immune from bad debt – trade credit insurance is an effective risk management tool that complements your existing credit control measures and provides you with a safety net whenever a debtor becomes insolvent.

Entire Industry

Financial risk relates to how your organization uses its financial leverage and manages its debt load, as mentioned, trade credit insurance is another way for exporters to handle risk in international trade. As well, systemic risk can be defined as the risk associated with the collapse or failure of a organization, industry, financial organization or an entire economy.

Agreed Terms

Be protected even when your customers fail to paying trade credit debts owed to you, problems lead to operational disruption, so it can be argued that most supply chain risk emerges as credit risk in some form or another, singularly, buyer means a customer, or, any person, who is liable to pay policyholder, for a trade credit insurance transaction on open and agreed terms.

Charged Customers

Your range of comprehensive credit insurance services are suited to all sizes of businesses and aim to protect you against the risk of financial default by your customers, parties to assess risk using credit scoring and trade credit insurance to mitigate risk, also, premiums are generally charged either as a percentage of sales or as a per annum rate on limits.

Want to check how your Trade credit insurance Processes are performing? You don’t know what you don’t know. Find out with our Trade credit insurance Self Assessment Toolkit: